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Author Topic: SlipperySlope's Bubble Collapse Journal  (Read 24563 times)
SlipperySlope
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Stephen Reed


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April 12, 2013, 07:18:26 PM
 #1

[edited to add new posts and to reflect current events]

My principal comments regarding the collapse of April 10, 2013 bubble.


Here [was] the [intermediate] term bear case in a nutshell ...

  • There will be no more enticing and greed-inducing news stories from the media. Now the benchmark is the crash and how speculators lost so much.
  • Investor sentiment, especially new investor sentiment has reversed. Impatience to buy has been replaced by caution
  • What is the correct valuation of fiat/bitcoin given what we know now? Certainly while the price doubled four times from January, the bitcoin economy did not do as well in percentage growth. Correct valuation depends then mostly on just how much of the run up since January is emotion, e.g. greed.
  • If the downtrend continues, then coin holders are tempted to sell coin expecting to buy back for less fiat.



It happened, so now let's discuss ...

Question 1: what is the expected duration of the down trend? My rough guess as argued here is until September 2013.

Question 2: how far down does the trend go? As of May 8, I believe that this bubble will collapse down to a price greater than the high of the previous bubble, e.g. above $32, and lower than the lowest low after the peak so far, i.e. $50. Because bubbles collapse to a price lower than most expect, the bottom could be below $32.

Bitcoin Bubble 1 Peaked June 8, 2011





Bitcoin Bubble 2 Peaked April 10, 2013



Rather than behaving like the 2011 bubble collapse, the April 2013 bubble collapse appears to be a damped oscillation resolved to a price 9x higher than when the bubble began. Continued sideways price movement for the remainder of 2013 would allow the long term price trend to catch up.

When the next big bitcoin bubble arrives, probably in 2014-15, I plan to trade on the expectation that the bubble collapse will be a damped oscillation, featuring several very large price swings.
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April 12, 2013, 07:50:16 PM
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BTC is going for 30% of what it was two days ago and you want to know if shorting now is a good idea  Roll Eyes
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April 12, 2013, 08:09:06 PM
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Did you sell at $75? Price is over $100 on bitfloor now  Shocked
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April 12, 2013, 08:11:58 PM
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Did you sell at $75? Price is over $100 on bitfloor now  Shocked

It is $94 on MtGox however, this could be Bull Trap #163.
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April 13, 2013, 04:09:54 AM
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The bid wall at 75 proved successful this afternoon and prices reached about 125 before turning back down. Like 2011, the Mt.Gox bitcoin exchange is the center of the discussion. DDoS attacks and a poor performing trading engine are to blame, and the uncertainty about trading bitcoins discourage new investors, and frustrate active traders.

I continue to believe that lessons learned from the 2011 crash are useful here when deciding tactics. Because the recent bubble took three months to form, I believe that the downside resolution will take more than a month, maybe two or three months to reach bottom. Impatience is the enemy now. I think that a trader having sold some coin to raise cash must simply hold on to that cash and wait for prices to fall deeply, even in the face of bull traps in the meantime.

As was well said by someone else, the lack of new buyers is like a great weight on the market. Despite the efforts of bargain hunters to prop up prices with bid walls and such, this weight is always present and affects every trade to the downside. Its really just the reverse of how the bubble was formed, when the flood of new buyers doubled prices three times in three months.

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April 13, 2013, 04:36:25 AM
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The bid wall at 75 proved successful this afternoon and prices reached about 125 before turning back down. Like 2011, the Mt.Gox bitcoin exchange is the center of the discussion. DDoS attacks and a poor performing trading engine are to blame, and the uncertainty about trading bitcoins discourage new investors, and frustrate active traders.

I continue to believe that lessons learned from the 2011 crash are useful here when deciding tactics. Because the recent bubble took three months to form, I believe that the downside resolution will take more than a month, maybe two or three months to reach bottom. Impatience is the enemy now. I think that a trader having sold some coin to raise cash must simply hold on to that cash and wait for prices to fall deeply, even in the face of bull traps in the meantime.

As was well said by someone else, the lack of new buyers is like a great weight on the market. Despite the efforts of bargain hunters to prop up prices with bid walls and such, this weight is always present and affects every trade to the downside. Its really just the reverse of how the bubble was formed, when the flood of new buyers doubled prices three times in three months.




So why do you think there is a lack of new buyers? Sorry, I'm not sure what post you're referring to.


The gox queue is over 20k, google trends for "bitcoin" has doubled since the peak last week, and the news coverage is growing and much less negative overall than I expected.

/r/bitcoin has had 30% growth this week, bringing it to ~34k subscribers, and I see a few new merchants accepting every day I go on there.
This forum has gained 8k members this month so far.

I don't know what will happen, but there sure seems to be a lot of momentum left.



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April 13, 2013, 05:01:21 AM
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The bid wall at 75 proved successful this afternoon and prices reached about 125 before turning back down. Like 2011, the Mt.Gox bitcoin exchange is the center of the discussion. DDoS attacks and a poor performing trading engine are to blame, and the uncertainty about trading bitcoins discourage new investors, and frustrate active traders.

I continue to believe that lessons learned from the 2011 crash are useful here when deciding tactics. Because the recent bubble took three months to form, I believe that the downside resolution will take more than a month, maybe two or three months to reach bottom. Impatience is the enemy now. I think that a trader having sold some coin to raise cash must simply hold on to that cash and wait for prices to fall deeply, even in the face of bull traps in the meantime.

As was well said by someone else, the lack of new buyers is like a great weight on the market. Despite the efforts of bargain hunters to prop up prices with bid walls and such, this weight is always present and affects every trade to the downside. Its really just the reverse of how the bubble was formed, when the flood of new buyers doubled prices three times in three months.



From Mt. Gox on APril 11th
- The number of new account opened went from 60k for March alone to 75k new account created for the first few days of April! We now have roughly 20,000 new accounts created each day.


Where did you get the impression that there is a lack of new buyers?
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April 13, 2013, 06:00:42 AM
 #8



Where did you get the impression that there is a lack of new buyers?


The price action?

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SlipperySlope
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April 15, 2013, 06:22:33 AM
 #9

4 days after the April 9 peak

Issue 1 - Evidence for or against the Bear Case.

I believe that the post-peak negative sentiment will shut off the flood of new money that caused the bubble. I define this negative sentiment rather weakly - merely the lack of news about 10x price increases and lack of new significant all-time highs, e.g. 33, 50, 100, 150, 200. Clearly the wave of euphoria on Reddit /r/bitcoin has abated.

This is the first Monday after the peak. The flood of new users registering to trade and subsequently verified at Mt. Gox has not really felt the effect of the crash. We know that today more new users will be able to trade dollars for bitcoins. The question is whether enough of them will buy to inspire further new users to register at Mt. Gox. The record from bubble 1 suggests that it will take at least a week for volume to settle down.

Issue 2 - Compare two bitcoin bubbles.

To the extent that comparing the April 10 bubble top with the June 8, 2011 bubble peak is useful, here is the data presented in terms of doubles and halving of USD/BTC prices.

**** Bitcoin Bubble 1 peak occurred June 8, 2011 ****

The way up ...
 0.498 January 31, 2011 -
 0.997 April 15 2011 - doubling time 74 days
 1.99 April 28, 2011 - doubling time 13 days
 3.98 May 10, 2011 - doubling time 12 days
 7.97 May 13, 2011 - doubling time 3 days
15.95 June 4, 2011 - doubling time 22 days
31.90 The high on Wednesday, June 8, 2011 - doubling time 4 days

The way down ...
31.90 The high on Wednesday, June 8, 2011
15.95 June 11, 2011 halving time 3 days
 7.97 August 5, 2011 halving time 55 days
 3.98 October 7, 2011 halving time 63 days
 2.20 November 14, 2011 halving time 38 days

Commentary on Bitcoin Bubble 1
  • the bubble price increase is double exponential, i.e. the rate of acceleration is itself increasing
  • the up move from 1.99 to 31.90 took 41 days
  • the down move from 31.90 to 2.20 took 159 days
  • in contrast to the increase to the peak, after the peak the rate of decrease is rather constant, halving every 52 days

**** Bitcoin Bubble 2 peak occurred April 10, 2013  ****

The way up ...
   4.16 December 19, 2011: 8.31 July 16, 2012
   8.31 July 16, 2012 - doubling time 210 days
  16.62 January 21, 2013 - doubling time 189 days
  33.25 March 1, 2013 - doubling time 59 days
  66.50 March 25, 2013 - doubling time 24 days
 133.00 April 3, 2013 - doubling time 9 days
 266.00 Wednesday, April 10, 2013 - doubling time 7 days

The way down ...
 266.00 Wednesday, April 10, 2013
 133.00 April 11 [I am ignoring April 10 low of 60]
  66.50 [I am ignoring April 10 low of 60]
  33.25
  16.62

Commentary on Bitcoin Bubble 2
  • the bubble price increase is double exponential
  • the sharp move up seems to begin January 7, 2013 at 13.50 - this will be a downside target I think as classic speculative bubbles tend to give back *all* of their bubble gains
  • the up move from 13.50 to 266.00 took 93 days
  • the down move from 266.00 to approximately 13.50 may like bubble 1 take approximately 160 days, e.g September 17, 2013, and halve in value approximately every 53 days
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April 15, 2013, 07:16:24 AM
 #10

I saw this image linked in another post. It perfectly illustrates the similarities between Bubble 1 and Bubble 2.

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April 15, 2013, 07:53:44 AM
 #11

The gox queue is over 20k, google trends for "bitcoin" has doubled since the peak last week, and the news coverage is growing and much less negative overall than I expected.

This just in:
http://www.google.com/trends/explore?hl=en-AU#q=bitcoin&date=today%201-m&cmpt=q





The low point's tooltip says 53 (47% drop). That's the biggest drop to date and given the news dynamic I don't see how interest can pick back up. I concur 100% with SlipperySlope, the news has changed dramatically: it no longer invites greed but caution. The Gox verification queue is probably just a myth.

Disclaimer: I'm a perennial bear that made a small fortune during this bubble and it's subsequent bull trap, so yeah, i'd like the satisfaction that I got out at the right time.


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April 15, 2013, 08:01:29 AM
 #12

Quote
... I'm a perennial bear that made small fortune during this bubble and it's subsequent bull trap, so yeah, i'd like the satisfaction that I got out at the right time.

At what price would you buy back in, and is there a minimum time that you would wait for things to settle down?
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April 15, 2013, 08:10:53 AM
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The gox queue is over 20k, google trends for "bitcoin" has doubled since the peak last week, and the news coverage is growing and much less negative overall than I expected.

This just in:
http://www.google.com/trends/explore?hl=en-AU#q=bitcoin&date=today%201-m&cmpt=q





The low point's tooltip says 53 (47% drop). That's the biggest drop to date and given the news dynamic I don't see how interest can pick back up. I concur 100% with SlipperySlope, the news has changed dramatically: it no longer invites greed but caution. The Gox verification queue is probably just a myth.

Disclaimer: I'm a perennial bear that made small fortune during this bubble and it's subsequent bull trap, so yeah, i'd like the satisfaction that I got out at the right time.

Currently the process from signing up, verifying and transferring funds to Mt. Gox takes about 2 weeks. So that huge surge in interest over the last few days has not played a part in the bitcoin market yet. Hell, the smaller surge in early April probably hasn't even bought in yet. And the low point is still higher than at any point before the recent surge.
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April 15, 2013, 08:27:59 AM
 #14

Quote
At what price would you buy back in, and is there a minimum time that you would wait for things to settle down?

When it dipped the second time, I had various buy orders at 30 ... 60. I couldn't get 100% back in and I lost the 120 secondary peak (sold all at about 100), but still, it's almost double money for free.

I think this is the best strategy when buying: buy on the long run, when market looks bear and "stable" and prepare ammo for the next bubble. Wait at least 6 months for the previous bubble to deflate before buying. OR, buy during panic moments and sell back after hours/days (higher risk).

I believe this is the worst market to buy in, an overheated "stable" high, with trigger happy people watching the price, ready to get out. It's a game of chicken with low potential upside and high risk.

Quote
Currently the process from signing up, verifying and transferring funds to Mt. Gox takes about 2 weeks. So that huge surge in interest over the last few days has not played a part in the bitcoin market yet. Hell, the smaller surge in early April probably hasn't even bought in yet. And the low point is still higher than at any point before the recent surge.

That's not the correct way to think about it, if you observe the interes/price relation of previous events they are perfectly correlated, there's no delay between the two lumps. So you will never be able to milk the very last people who enter on the peak, the only way to get their money is to have an even higher news peak today or this week. And I'm just saying the news space is saturated and the message is no longer greed inducing, but caution inducing.


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April 15, 2013, 08:34:19 AM
 #15

The gox queue is over 20k, google trends for "bitcoin" has doubled since the peak last week, and the news coverage is growing and much less negative overall than I expected.

This just in:
http://www.google.com/trends/explore?hl=en-AU#q=bitcoin&date=today%201-m&cmpt=q





The low point's tooltip says 53 (47% drop). That's the biggest drop to date and given the news dynamic I don't see how interest can pick back up. I concur 100% with SlipperySlope, the news has changed dramatically: it no longer invites greed but caution. The Gox verification queue is probably just a myth.

Disclaimer: I'm a perennial bear that made small fortune during this bubble and it's subsequent bull trap, so yeah, i'd like the satisfaction that I got out at the right time.

Definitely something to keep track of, I'm not convinced yet though Smiley I think the next week of data will be interesting.

I don't think we could really expect to keep interest that high, but it's still 3 to 4 times what it was in March during most of the price increase. I'd be happy to go back to the levels in March, and continue slower growth.

There's also more to talk about this time than just the price. Much of the media coverage I've been seeing lately is focused on the benefits of merchants accepting bitcoins as payment. More will have to happen to keep it going though.

But as far as what price will be sustainable at that level of growth, I have no idea.
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April 15, 2013, 08:43:53 AM
 #16

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But as far as what price will be sustainable at that level of growth, I have no idea.

Smoothing out the boom and bust of the bitcoin price series suggests an annual growth of approximately 5x, or about 400% APR. I take this as a strong indicator of the relative value of the underlying bitcoin economy. Bubbles are happening in bitcoin because 400% APR is enormous and speculators naturally get way, way ahead of the underlying fundamentals as new people learn about bitcoins and big returns.

Back in January, bitcoin was fairly valued at 13.50 even though it advanced during 2012. I think this is sustainable as a base.
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April 15, 2013, 09:13:56 AM
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But as far as what price will be sustainable at that level of growth, I have no idea.

Smoothing out the boom and bust of the bitcoin price series suggests an annual growth of approximately 5x, or about 400% APR. I take this as a strong indicator of the relative value of the underlying bitcoin economy. Bubbles are happening in bitcoin because 400% APR is enormous and speculators naturally get way, way ahead of the underlying fundamentals as new people learn about bitcoins and big returns.

Back in January, bitcoin was fairly valued at 13.50 even though it advanced during 2012. I think this is sustainable as a base.

No, bitcoin was undervalued at $13.50 in January. Like gold was undervalued at $250 and silver undervalued at $5. The price corrected upwards to reflect the real growth in the bitcoin economy and larger userbase and increase adoption. $266 was overvalued no doubt, but now Bitcoin has found it's new equlibrium at $100.

$100 is the new $13.50.
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April 15, 2013, 10:17:51 AM
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But as far as what price will be sustainable at that level of growth, I have no idea.

Smoothing out the boom and bust of the bitcoin price series suggests an annual growth of approximately 5x, or about 400% APR. I take this as a strong indicator of the relative value of the underlying bitcoin economy. Bubbles are happening in bitcoin because 400% APR is enormous and speculators naturally get way, way ahead of the underlying fundamentals as new people learn about bitcoins and big returns.

Back in January, bitcoin was fairly valued at 13.50 even though it advanced during 2012. I think this is sustainable as a base.

No, bitcoin was undervalued at $13.50 in January. Like gold was undervalued at $250 and silver undervalued at $5. The price corrected upwards to reflect the real growth in the bitcoin economy and larger userbase and increase adoption. $266 was overvalued no doubt, but now Bitcoin has found it's new equlibrium at $100.

$100 is the new $13.50.

$100 is the new $20 (in 2011).  It will drag on down to $32, doubt we'll ever see $13.50 though.
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April 15, 2013, 10:33:57 AM
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But as far as what price will be sustainable at that level of growth, I have no idea.

Smoothing out the boom and bust of the bitcoin price series suggests an annual growth of approximately 5x, or about 400% APR. I take this as a strong indicator of the relative value of the underlying bitcoin economy. Bubbles are happening in bitcoin because 400% APR is enormous and speculators naturally get way, way ahead of the underlying fundamentals as new people learn about bitcoins and big returns.

Back in January, bitcoin was fairly valued at 13.50 even though it advanced during 2012. I think this is sustainable as a base.

No, bitcoin was undervalued at $13.50 in January. Like gold was undervalued at $250 and silver undervalued at $5. The price corrected upwards to reflect the real growth in the bitcoin economy and larger userbase and increase adoption. $266 was overvalued no doubt, but now Bitcoin has found it's new equlibrium at $100.

$100 is the new $13.50.

$100 is the new $20 (in 2011).  It will drag on down to $32, doubt we'll ever see $13.50 though.

We already hit the bottom 3 days ago at $54.25. If you didn't buy when you had the opportunity then commiserations.
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April 15, 2013, 10:35:50 AM
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But as far as what price will be sustainable at that level of growth, I have no idea.

Smoothing out the boom and bust of the bitcoin price series suggests an annual growth of approximately 5x, or about 400% APR. I take this as a strong indicator of the relative value of the underlying bitcoin economy. Bubbles are happening in bitcoin because 400% APR is enormous and speculators naturally get way, way ahead of the underlying fundamentals as new people learn about bitcoins and big returns.

Back in January, bitcoin was fairly valued at 13.50 even though it advanced during 2012. I think this is sustainable as a base.

No, bitcoin was undervalued at $13.50 in January. Like gold was undervalued at $250 and silver undervalued at $5. The price corrected upwards to reflect the real growth in the bitcoin economy and larger userbase and increase adoption. $266 was overvalued no doubt, but now Bitcoin has found it's new equlibrium at $100.

$100 is the new $13.50.

$100 is the new $20 (in 2011).  It will drag on down to $32, doubt we'll ever see $13.50 though.

We already hit the bottom 3 days ago at $54.25. If you didn't buy when you had the opportunity then commiserations.


Is that like we already hit the peak last week at $200?
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