SlipperySlope's Bubble Collapse Journal

[blueberry]

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?

Yes we hit the peak at $266. I believe the price will remain in a trading range of $80-$150 for the next 1-3 months. The sentiment of the forum seems evenly balanced between bulls and bears. I think we are at equilibruim at $100 and sideways price movement in the short to medium term is likely. After that we'll probably rally past $200 later in the year but slowly.

[bitrider]

My experience watching markets suggests that V shaped recoveries are notoriously unstable and rarely lead to new highs. Bitcoin is moving very fast on every level so I think the U shaped recovery will not take as long as it did back in 2011-2012, I still think we will have 3-4 months of testing before we really get moving again. I think the market wants to test the new lows of 55 and maybe even back to 35 before going for the next big leg up. We may rally from here ($100) because there are lots of speculators in the game, but I would bet we will come back to test these lows. Of course I'm good either way. If btc goes down, I just get to buy more coin, if it goes up, I just hang on tight...

[afbitcoins]

I think people like SlipperySlope and bitrider are on the right lines.

Wether we like it or not the mania has ended (for now at least) and we are now in a new phase. From what I've seen speculative bubbles seem to follow a very classical pattern, there is the initial phase which is the bull run which grows exponentially over some time, at some point it can't be sustained any longer as the price increase becomes almost vertical.

In this case MtGox infrastructure causing lags was the cause of the fracture, but if it hadn't been that something else would have done it soon enough as the upwards pressure becomes unsustainable.

Next the price plummets as panic sets in and everyone rushes to sell all at once. This creates a huge spike down on the price chart. In the aftermarth of the crash, the price rebounds but not as high as the original peak (dead cat bounce). Then there is a long slow decline as enthusiasm fades more and more.

All of this has been repeated again and again in different markets, from tulip bulbs to gold and silver in 1980 to bitcoins in 2011, and I don't think this will be much different.

I have an entry in my blog where i also talk a bit more about this, 'Bull market tops'.

[gizmoh]

Bitcoin and Gold, Astounding similarities:

http://www.kitco.com/reports/KitcoNews20130415JW_am.html

[talnted]

I agree with much of what has been said already.  I feel that we will track down to sub 50 at which point bitcoin will stabilize.  This downward sell off will continue over the next 3 to 4 months.

[Bitsaurus]

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.

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?

So I said we would head for $32.  We're definitely not stable at $100.  It shows a little bounce at $50 (probably the number) but sometimes before end of the week I'm guessing it will hit the magic $32.

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

[SlipperySlope]

5 days after the April 10 peak

Issue 1 - Evidence for the Bear Case.

The post-peak negative sentiment 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.

Sunday/Monday price action was almost exactly reversed from before the peak. Previously, new deposits at Mt. Gox would propel the price strongly upwards. In contrast, the decline since Sunday has been continuous and brutal.

The most compelling evidence for the bear case is that a new post peak low was recorded this morning. This issue is closed.

Issue 2 - Comparison with Bitcoin Bubble 1.

The second halving of price from the 266 peak is 66.60. This price was reached today, April 16, which is six days after the peak. In the previous bubble, the corresponding point of decline occurred 58 days later. Accordingly, the rate of decline for this bubble is more rapid than the first bubble by a factor of 10.

I suppose that in this bubble, the smart money exited sooner - given what they learned from the first one.

[wobber]

5 days after the April 10 peak

Issue 1 - Evidence for the Bear Case.

The post-peak negative sentiment 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.

Sunday/Monday price action was almost exactly reversed from before the peak. Previously, new deposits at Mt. Gox would propel the price strongly upwards. In contrast, the decline since Sunday has been continuous and brutal.

The most compelling evidence for the bear case is that a new post peak low was recorded this morning. This issue is closed.

Issue 2 - Comparison with Bitcoin Bubble 1.

The second halving of price from the 266 peak is 66.60. This price was reached today, April 16, which is six days after the peak. In the previous bubble, the corresponding point of decline occurred 58 days later. Accordingly, the rate of decline for this bubble is more rapid than the first bubble by a factor of 10.

I suppose that in this bubble, the smart money exited sooner - given what they learned from the first one.



This would mean we are gonna recover faster

[SlipperySlope]

7 days after the April 10 peak

How many more seller capitulations before the bottom?

The previous bitcoin bubble that peaked back in June 8, 2011 at 31.90, did not finally reach bottom at 2.20 until 159 days later. It dropped on average about 1% daily and featured six capitulations, the last two reaching the bottom vicinity. The six capitulations on average occurred 31 days apart. In the previous bubble, every one of the six capitulations failed to make new highs.

In this bubble, I count April 12 as the first capitulation, and yesterday April 16 as the second capitulation. These are only 4 days apart and thus for these two, the capitulations in Bitcoin Bubble 2 are occurring 8x faster than in Bitcoin Bubble 1.

If this bubble has the same number of post-peak seller capitulations as the last one, then 3 or 4 remain until the bottom is reached.

[SlipperySlope]

This would mean we are gonna recover faster

You are saying that, by way of analogy and symmetry, that because the decline is faster this time, then the recovery will be too.  That is plausible, but I think that the bottom will not be reached until people have forgotten about the bubble peak - months away.

[rpietila]

This would mean we are gonna recover faster

You are saying that, by way of analogy and symmetry, that because the decline is faster this time, then the recovery will be too.  That is plausible, but I think that the bottom will not be reached until people have forgotten about the bubble peak - months away.

This bubble burst in 5 days instead of 5 months. Let's face it, $32 sustainable coin price any day from now, is becoming more and more of a slim chance. Even crossing $50 is difficult, since the price was tested 4 separate times in intraday trading during the last week.

Last time we saw a quick recovery from $2 to $7, and then a long base at $5. My numbers would be that $100 is the new $5 for the following months.

Since the opening of Mt.Gox, bitcoin's price has doubled on average in 90 days. I agree with all the ones saying that this rapid an appreciation is inherently chaotic, since the bubbles will inevitably form and burst. I think we are actually below the trendline now, and that this is a sweet entry spot. When Mt.Gox was opened, 1000 people knew about Bitcoin, and on average they were willing to invest $100. Now the price is up 1000-fold, but the fundamentals have gotten 10^4-10^5 times better.

It is good to remember the big picture. In 2016 we'll hit $300k.

[SlipperySlope]

This bubble burst in 5 days instead of 5 months. ...
My numbers would be that $100 is the new $5 for the following months.

Bubble bursting follows a double exponential rate of decay, which is the opposite of what happened in the run up. Post peak, one would expect the price halving time to increase - thus the first halving from 266 down to 133, then the second very quickly down to 66.5. In contrast to your view, I think that the having time to 33.25 will be some weeks away - if the rate of decline slows down as in a typical bubble collapse.

What is your basis for the growth rate of the bitcoin economy? A linear regression of the log closing price on Mt. Gox starting in 2010 to present suggests a bitcoin economy growth rate of 4.8x annually = 580%. That is a fantastic growth rate, but the market gets ahead of that when doubling several times in a few months.

[rpietila]

This bubble burst in 5 days instead of 5 months. ...
My numbers would be that $100 is the new $5 for the following months.

Bubble bursting follows a double exponential rate of decay, which is the opposite of what happened in the run up. Post peak, one would expect the price halving time to increase - thus the first halving from 266 down to 133, then the second very quickly down to 66.5. In contrast to your view, I think that the having time to 33.25 will be some weeks away - if the rate of decline slows down as in a typical bubble collapse.

What is your basis for the growth rate of the bitcoin economy? A linear regression of the log closing price on Mt. Gox starting in 2010 to present suggests a bitcoin economy growth rate of 4.8x annually = 580%. That is a fantastic growth rate, but the market gets ahead of that when doubling several times in a few months.

Mt.Gox first day = 0.06, yesterday 73. No linear regression, just  (days_open/30)th root (73/0.06) ~1.26, hence 3 months double.

It is more than you think. If we continue this way, $300k is expected in 2016 

[MatTheCat]

My prayers would be that $100 is the new $5 for the following months.

I have corrected that for you.

HTH.

[rpietila]

My prayers would be that $100 is the new $5 for the following months.

I have corrected that for you.

HTH.

Quoted in anticipation for moderator action. Not all people can immediately see the troll here, which would lead them to believe that I actually said something like that. Can somebody please tell whether it is OK to alter the text in quotes in the way described?

[zby]

I don't think any mathematical formula would fit it - because bubbles are built on feedback loops.  For example this latest crash was the result of people anticipating a long slow slide - they capitulated earlier - but the effect of it can be that this time there would be no long slow slide.

Personally I would rather expect a huge triangle here - there is lots of pressure up, even when the prices are crazy.

[blueberry]

This bubble burst in 5 days instead of 5 months. ...
My numbers would be that $100 is the new $5 for the following months.

Bubble bursting follows a double exponential rate of decay, which is the opposite of what happened in the run up. Post peak, one would expect the price halving time to increase - thus the first halving from 266 down to 133, then the second very quickly down to 66.5. In contrast to your view, I think that the having time to 33.25 will be some weeks away - if the rate of decline slows down as in a typical bubble collapse.

What is your basis for the growth rate of the bitcoin economy? A linear regression of the log closing price on Mt. Gox starting in 2010 to present suggests a bitcoin economy growth rate of 4.8x annually = 580%. That is a fantastic growth rate, but the market gets ahead of that when doubling several times in a few months.

The bid depth on the Mt. Gox order book hit an all time high today supporting current prices. This was not the case during the 2011 crash (bid depth back then was almost non-existent).

[BubbleBoy]

Everybody is expecting to catch another falling knife, and profit from the differential when it goes back up, that's why all the bids are there. That doesn't mean the fundamental problem with the bubble (irrational overvaluation) has disappeared. If price steadily drops over the next few weeks and the promised influx of buyers fails to materialize, which I think they will, the bid wall will vanish.

If you look at the google trends data, the interest peak becomes more and more clear a thing of the past, so there's nothing to salvage the situation short of a rapid valuation over 250$, so that reporters and news outlets are interested in the story again and dumb money starts flowing again.

[blueberry]

Everybody is expecting to catch another falling knife, and profit from the differential when it goes back up, that's why all the bids are there. That doesn't mean the fundamental problem with the bubble (irrational overvaluation) has disappeared. If price steadily drops over the next few weeks and the promised influx of buyers fails to materialize, which I think they will, the bid wall will vanish.

If you look at the google trends data, the interest peak becomes more and more clear a thing of the past, so there's nothing to salvage the situation short of a rapid valuation over 250$, so that reporters and news outlets are interested in the story again and dumb money starts flowing again.

So you're saying it's either a rapid shoot in price back over $250 or a slow drop in price over weeks/months down to new lows. And anything in between is impossible?

So the price stabilizing between $90-$110 for a month or two followed by a gradual increase to $150 by the end of the year is impossible?

[Bitmeat]

This bubble burst in 5 days instead of 5 months. ...
My numbers would be that $100 is the new $5 for the following months.

Bubble bursting follows a double exponential rate of decay, which is the opposite of what happened in the run up. Post peak, one would expect the price halving time to increase - thus the first halving from 266 down to 133, then the second very quickly down to 66.5. In contrast to your view, I think that the having time to 33.25 will be some weeks away - if the rate of decline slows down as in a typical bubble collapse.

What is your basis for the growth rate of the bitcoin economy? A linear regression of the log closing price on Mt. Gox starting in 2010 to present suggests a bitcoin economy growth rate of 4.8x annually = 580%. That is a fantastic growth rate, but the market gets ahead of that when doubling several times in a few months.

Mt.Gox first day = 0.06, yesterday 73. No linear regression, just  (days_open/30)th root (73/0.06) ~1.26, hence 3 months double.

It is more than you think. If we continue this way, $300k is expected in 2016 

You're drawing the line in the wrong place like everyone else who makes graphs on this site. End the numbers in late 2012 before the bubble started when it was around 10

And that forgets that bitcoin doesn't just go up magically because you whisper "bitcoin" in someone's ear. It gains investor confidence as more sites and companies start accepting it as a form of payment.

Unless you're serious about your belief that the total bitcoin economy will be worth 3 trillion dollars in just 3 years. In that case there's probably no point discussing it with you.