What would a fast exponential run-up look like?

[Zangelbert Bingledack]

Suppose just for kicks that the trend that started in December, of BTC prices doubling about every two months, were to continue for the next three years or so (reaching mass adoption, million-dollar bitcoins). Sometimes it'd take more than two months, sometimes less, with all manner of crazy mini-bubbles and crashes within the bull run, but suppose the trend held relatively steady over time.

Needless to say, it'd be a white-knuckle roller coaster ride with plenty of euphoria and ample gut-spilling scares. Millionaires and billionaires would be born, profits would be taken heartily all the way up, bubbles would be called constantly, and many would miss the train - perhaps multiple times. Most of all people would be wondering WTF was going on, endless theories would be postulated and debated.

My question is, if this were to actually happen, how would speculators like those on this forum react? What would be the patterns in sentiment?

With the benefit of hindsight, or true belief in Bitcoin, you'd just calmly hold, accumulate when you could, and spend or take some relatively small profits as your life situation and needs required. But what would everyone else do?

The reason this question interests me is that this is one possible scenario* and I'd like to know if there is any way to identify it if it does happen. That is, at each point in time, I want to be able to tell the difference between this kind of relentless, meteoric rise and just a big frothy bubble: for example, a bubble where it doubles three more times by August - to $200 - then drops back down to $12, leveling out at $35 or so, which might be considered a healthy growth target from the current $24 price.

*Three years to mass adoption may be a far-fetched, but even if it doubled every 4-6 months and took 6-10 years it would be an insane ride all the same, with I suppose many of the same characteristics.

[Stephen Gornick]

Most of all people would be wondering WTF was going on, endless theories would be postulated and debated.

A rising exchange rate doesn't indicate being any closer to mass adoption.  What does indicate being closer to mass adoption is things like BitcoinWireless expanding the "reach" of Bitcoin to millions of new potential users.  When things like Ripple expand the concept of alternative currencies to many millions as well.

These weren't available even six weeks ago.

If the market is overshooting, it will pull back.  But so far, it has been pretty good at seeing developments (e.g., potential of SatoshiDICE and other online gambling) and valuing the exchange rate to account for it before the actual demand resulting from these services shows up in blockchain activity.

[Vandroiy]

With normal human players, it would self-destruct.

There is an error newbie speculators easily fall for, which is following trends. If there is such a clear, ever-present up-trend, the market will fail to select the speculators who stabilize price in the mid- and long-term, possibly even select those who do the opposite and only rely on the ever profitable up-trend.

At some point, those badly selected speculators dominate and drive price to a ridiculously high level, then crash it as suppressed market realities kick in. That would start a massive bust, which in turn busts all lending and investment bubbles currently forming on top of it all -- simultaneously. As if that's not bad enough, any players who were able to construct instruments to profit off the crash will then drain backing funds at the same time.

It's a financial nuke if you ask me.

[twolifeinexile]

With normal human players, it would self-destruct.

There is an error newbie speculators easily fall for, which is following trends. If there is such a clear, ever-present up-trend, the market will fail to select the speculators who stabilize price in the mid- and long-term, possibly even select those who do the opposite and only rely on the ever profitable up-trend.

At some point, those badly selected speculators dominate and drive price to a ridiculously high level, then crash it as suppressed market realities kick in. That would start a massive bust, which in turn busts all lending and investment bubbles currently forming on top of it all -- simultaneously. As if that's not bad enough, any players who were able to construct instruments to profit off the crash will then drain backing funds at the same time.

It's a financial nuke if you ask me.

How to define a ridiculously high?

[chriswilmer]

Suppose just for kicks that the trend that started in December, of BTC prices doubling about every two months, were to continue for the next three years or so (reaching mass adoption, million-dollar bitcoins). Sometimes it'd take more than two months, sometimes less, with all manner of crazy mini-bubbles and crashes within the bull run, but suppose the trend held relatively steady over time.

Needless to say, it'd be a white-knuckle roller coaster ride with plenty of euphoria and ample gut-spilling scares. Millionaires and billionaires would be born, profits would be taken heartily all the way up, bubbles would be called constantly, and many would miss the train - perhaps multiple times. Most of all people would be wondering WTF was going on, endless theories would be postulated and debated.

My question is, if this were to actually happen, how would speculators like those on this forum react? What would be the patterns in sentiment?

With the benefit of hindsight, or true belief in Bitcoin, you'd just calmly hold, accumulate when you could, and spend or take some relatively small profits as your life situation and needs required. But what would everyone else do?

The reason this question interests me is that this is one possible scenario* and I'd like to know if there is any way to identify it if it does happen. That is, at each point in time, I want to be able to tell the difference between this kind of relentless, meteoric rise and just a big frothy bubble: for example, a bubble where it doubles three more times by August - to $200 - then drops back down to $12, leveling out at $35 or so, which might be considered a healthy growth target from the current $24 price.

*Three years to mass adoption may be a far-fetched, but even if it doubled every 4-6 months and took 6-10 years it would be an insane ride all the same, with I suppose many of the same characteristics.

It's a great question. I would be interested in looking at historical precedent and study what people did with shares of Microsoft or some other exponentially growing asset (where it wasn't clear how long it would last).

[DeathAndTaxes]

I think sadly as much of a long term believer as I am in Bitcoin I would sell out too low and too early under such a scenario.
I tend to sell into parabolic rallies and while I am never "out" (0 BTC long) and never at a point I couldn't add more funds I think the scenario you described would result in my handing a lot of wealth to aggressive buyers.  Personally I get the most bullish in the long slow upward periods of time or the corrections with snap back buying.  I bought heavily into the "Pirate crash" (regardless of it was caused by Pirate or not) and dollar cost averaged by mining since mid 2011.  I would hate to hand those coins to someone too early. 

[Zangelbert Bingledack]

To make this scenario more concrete:



Imagine if the July-to-mid-August 2012 slope on this log-scale chart were setting the exponential pace for the next few years, and it just took a little detour because of the pirate@40 scam. Then following that line to the present day would put us at around $200/BTC right now just to revert to the mean

Now notice that this slope is almost as steep as that of the current rally that started last month. Is the current pace, or just a bit slower, the multi-year trendsetter??

This of course seems highly unlikely, and would normally be a classic investing error of wishful/"greedy" thinking, but I want to note it for reference purposes just in case something insane like that actually happens. For example, if we see $100 in the next few weeks - probably justified, in the eyes of spectators, by the breaking of the all-time high at $32 - and it holds above $100, it might be worth considering the exponential moonshot more seriously.

Note also, the July-Aug 2012 slope could very well be a bit steeper than the real mean in an exponential run-up scenario, just due to overexuberance, making the $200/BTC figure too high. Combined with the fact that the current rally is a bit steeper than July-Aug 2012, even this crazy exponential growth scenario might suggest we're getting overdue for a small correction.

Once again, I emphasize that this is merely a far-fetched "just in case" analysis. More than likely this post will instead be looked at in hindsight as a classic sign of a bubble. Either way, long term BTC is either zero or galactic, and if it's galactic it has a huge amount of unreasonably fast running to do.

[sunnankar]

I think sadly as much of a long term believer as I am in Bitcoin I would sell out too low and too early under such a scenario.
I tend to sell into parabolic rallies and while I am never "out" (0 BTC long) and never at a point I couldn't add more funds I think the scenario you described would result in my handing a lot of wealth to aggressive buyers.

Hence, why a better strategy would be to be long bitcoin and hedge on MPEx (assuming the time and volatility premiums come down!).

[cloon]

that's how a fast exponential run-up looks like:


how far will you go?

[thefiniteidea]

[notme]

Is time running backwards now?

[sunnankar]

For the Bitcoin network to become a value store worth $100 Billion
(a relatively small amount of cash when looking at companies (paypal/ebay has 73.5bil market cap) and a dismally tiny fraction of any real wealth (APPL has more than 100bil cash on hand))
each bitcoin would need to be priced at upwards of $3000

If the price doubled every six months it would still take three years to get there. I personally think we will get there much quicker than 2016.

Your numbers are a quite a bit off. Look at the table in this article near the conclusion. It has a whole bunch of different comparisons. For example, "Visa (V)   $101.9B   $9,704.76 (10.5m bitcoins)   $4,852.38 (21m bitcoins)".

[Zangelbert Bingledack]

Hmmmm.....

[adamstgBit]

LMFAO

[smoothie]

ROFL! Made me laugh hahahahaha!

[goxed]

OMG!!

[lebing]

I lol'd

[calian]

Are we still on track?

[piramida]

Are we still on track?

If I remember my 7th grade math correctly, this is called linear growth. or a *very* wide exponent that may start off about now and end at four-digit prices. you choose.

http://bitcoincharts.com/charts/mtgoxUSD#rg60zigDailyztgCzm1g10zm2g25

[Zangelbert Bingledack]

Are we still on track?

Yep, on a log scale chart the run-up since January just looks like a straight line. It was lagging just a bit behind until today.