November 2013 Bubble Analysis

[windjc]

So far it's been amazing how accurate the general sentiment on this forum (I mean the general sentiment of the relatively oldtimers and some other astute ones) has been been on this surge. Between the markets' shrugging off the SR shutdown, plus China, plus the BIT, plus intense and way more positive media coverage, a big rise was very very predictable and many were predicting it (including me myself).

On October 14th I posted the following reasons why the price was about to surge:

14 big reasons:

• China
• Second Market Bitcoin Investment Trust delayed effect
• SR had 100,000 users engaging in active commerce, proving Bitcoin is a very real medium of exchange
• SR shutdown caused only a flash crash, proving the current price level is solid*
• SR shutdown generated a lot of Bitcoin publicity, the trial guarantees more, plus feds have Bitcoin wallet
• DPR's huge cold wallet is reportedly untouchable; off-shore account holders' ears are perking up
• SR shutdown proved SR was not a critical part of the Bitcoin ecosystem, not even for price support (see above)
• SR shutdown cleaned the image of Bitcoin up in many people's minds, even though others like it will sprout
• Global financial market turmoil coming to a head; Jim Rogers: "this Fall is probably the beginning of the end"
• US government shutdown silliness, people are worried and the US is showing serious signs of imminent meltdown
• China-EU agreement to cut out USD in trade, a huge blow to USD reserve currency status - one of many
• Ultra-loose Janet Yellen appointed as next Fed chief, QE to infinity!
• 6 months since last bubble, dust settled, now finally clear to people that it was a legit price correction (upwards)
• Talk of more Cyprus-style "haircuts" on depositors, taking the Keynesian "hoarding=bad!" to its logical endpoint

*Remember March 11? Slow orphan blocks, hard fork, double-spend --> FLASH CRASH --> price ultimately unaffected, proving in people's minds that the growth from January through March 11 wasn't just silly speculation and vapors but real support, so then people threw caution to the wind and piled in without reservation

To me it was the easiest call ever, and I said as much. Many people who I recognized from the early 2013 bubble were similarly confident in an imminent price rise.

Surging up toward $1000 was considered quite bold but many here predicted it nonetheless, with a correction back toward around $500 then settling in between, and that looks like exactly what is happening.

Then now, by looking at the log charts and seeing when the moves look exponential even on the log chart, when they start curving upward, most of these same people have been able to anticipate the imminent correction this week.

One thing about a market with more mature, experienced investors is that it is less volatile. They are waiting to damp the tops and catch the bottoms. Now with the newbie China investors here it still gets dicey, but I feel like the oldtimers are doing pretty well holding the fort down.

As to where we'll go from here, since we had a nice big correction now it seems we'll do the familiar dragon/alpaca pattern, which is basically oscillating in the triangle SlipperySlope drew above and then maybe some steadiness before going higher. I think there is yet more steam in this run-up, but double exponential growth cannot be tolerated, not even in Bitcoin. Bitcoin likes exponential growth, which is insane enough already.

I like you post and most of it is true. However, we are testing support at $500 (Gox) and that looks like it very well may not hold.

If that support does not hold then we could be on a slower drip down.  It looks at least like we are not going to consolidate in the 700s, so I do not think we will be going up to new highs in the next couple of weeks. Of course, I could be absolutely wrong. But right now, I'd take that bet that we are going lower for a while (not like in April) before getting our legs back. And the longer we go down, the longer its going to take us to go back up. We very well might not see ATHs until 2014.

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[SlipperySlope]

Great thread with good accuracy! Respect you called it right.

we might expect one more doubling with the peak very roughly around $1000

Here is some contribution of mine. I would say your approach is better because it is universal, while I was trying to make out indicators of the final stages of a bubble by looking at it graphically. The disadvantage of it is that you have to accomodate bubbles you want to compare in the same image to keep the ratio. Read all about how I did it here: https://www.tradingview.com/v/sptX03Sf/

Update: The Final trend line (not in version of upper picture) turned out exactly 83.0° and is typical for the last slope increase before collapse. It started from 498$ and was finally crossed by the falling candle body at 706$. The candle closed below the trendline, which is, if you read my methodoligy beyond this link cryteria for calling the burst. I have to admit anecdotely that I sold at 580$, not going all the way with my method. I could have gained another 20%.

Degrees of Craziness indeed. I believe that we are both measuring the same phenomenon.

There is actually decades-long financial science behind this sort of bubble analysis: http://arxiv.org/abs/cond-mat/9903321. The theory is that the crash hazard rate rapidly increases at the bubble peak, and that is what we are indirectly measuring via your angles, Bolinger outliers as described above, and my own doubling duration times.

[SlipperySlope]

. . . However, we are testing support at $500 (Gox) and that looks like it very well may not hold.

If that support does not hold then we could be on a slower drip down.  It looks at least like we are not going to consolidate in the 700s, so I do not think we will be going up to new highs in the next couple of weeks. Of course, I could be absolutely wrong. But right now, I'd take that bet that we are going lower for a while (not like in April) before getting our legs back. And the longer we go down, the longer its going to take us to go back up. We very well might not see ATHs until 2014.

Agree with your interpretation of overnight price action. Perhaps other commentators would too.

Although BTC China has been trending down towards their post-peak low, this recent down leg was propelled by large sell orders on MtGox.

[Tzupy]

After looking at the 2011 bubble charts, and the similarities with the current bubble popping, I am getting pessimistic.
That 2011 bubble took a long time to fully deflate, and when it did, it was at 15x less than the peak. I hope this one won't be as bad.

[BitThink]

After looking at the 2011 bubble charts, and the similarities with the current bubble popping, I am getting pessimistic.
That 2011 bubble took a long time to fully deflate, and when it did, it was at 15x less than the peak. I hope this one won't be as bad.

You mean less than $60? That will be scary, but in the same time wonderful if you want to increase your holding.

[Tzupy]

I'm not saying that it will go that low, but it's possible. From the 10k coins seen in Gox order books, now there
are about 33k, and as holders will see the price not going up significantly, they might decide to sell more before
the price drops further, in a cascading effect. And then we may see multiple aborted new bubbles and capitulations.

[windjc]

After looking at the 2011 bubble charts, and the similarities with the current bubble popping, I am getting pessimistic.
That 2011 bubble took a long time to fully deflate, and when it did, it was at 15x less than the peak. I hope this one won't be as bad.

You would have to give me much more than a technical case for why Bitcoin would wind up at $60.  That would fly in the face of everything that has happened in the last 6 months. All the press, all the VC capital, all the Chinese, all the capital inflow, the higher cost of mining, and a hundred other bullish factors.

In 2011 Bitcoin was hardly a viable option or a blip on the radar. Today bitcoin is in front of congress.

Please explain how we go to $60?

[windjc]

I'm not saying that it will go that low, but it's possible. From the 10k coins seen in Gox order books, now there
are about 33k, and as holders will see the price not going up significantly, they might decide to sell more before
the price drops further, in a cascading effect. And then we may see multiple aborted new bubbles and capitulations.

Good grief. I've seen you post this kind of thing several times before. It simply flies in the face of logic.

One, who in their right mind is going to crash the market down that far?

Second, you completely fail to acknowledge the tremendous buying pressure at several support stops along the way.   There are hundreds of millions of dollars sitting on the sidelines now that would KILL to buy at $60 and much higher.

[windjc]

After looking at the 2011 bubble charts, and the similarities with the current bubble popping, I am getting pessimistic.
That 2011 bubble took a long time to fully deflate, and when it did, it was at 15x less than the peak. I hope this one won't be as bad.

Also, this bubble is not similar to 2011. 2011 lost 90% of its value in its first drop. Not even comparable.

[Tzupy]

We won't know if it's similar to the 2011 until it fully deflates, that's why I said POSSIBLE.

And with all the good press, it's still going down for now, due to market supply and demand.
Think about what can happen when there will be bad press about the crash.

Those who profited most by manipulating the price to new, almost unbelievable highs, will profit most,
when they will buy back tons of cheap coins at the bottom. Bitcoin will rise again and they'll make huge profits.

[windjc]

We won't know if it's similar to the 2011 until it fully deflates, that's why I said POSSIBLE.

And with all the good press, it's still going down for now, due to market supply and demand.
Think about what can happen when there will be bad press about the crash.

Those who profited most by manipulating the price to new, almost unbelievable highs, will profit most,
when they will buy back tons of cheap coins at the bottom. Bitcoin will rise again and they'll make huge profits.

You are talking in crazy hypotheticals.  The landscape from 2011 to now is completely changed. Have you not noticed a trend of higher highs and higher lows after every bubble? And now, all of a sudden, after 3 straight months of positive news (actually longer) we are going to buck the trend and have lower lows?

No way.

[SlipperySlope]

Recall that we waited 6 days for the bottom in the April bubble.

I believe that this bubble has more in common with the April bubble than with the great bitcoin bubble of June 2011.



As Coinbase intermittently permits, I am buying small amounts.

[bitrider]

I'm not saying that it will go that low, but it's possible. From the 10k coins seen in Gox order books, now there
are about 33k, and as holders will see the price not going up significantly, they might decide to sell more before
the price drops further, in a cascading effect. And then we may see multiple aborted new bubbles and capitulations.

Second, you completely fail to acknowledge the tremendous buying pressure at several support stops along the way.   There are hundreds of millions of dollars sitting on the sidelines now that would KILL to buy at $60 and much higher.

+1  I see it very unlikely that we will drop below our April highs (the buy pressure below that is enormous). I see nothing technically nor fundamentally at the moment that would suggest that. We just got ahead of ourselves, and this will happen many times going forward as news waves of new money come into the game, and the traders play off this, as far as they can.

[SlipperySlope]

I'm not saying that it will go that low, but it's possible. From the 10k coins seen in Gox order books, now there
are about 33k, and as holders will see the price not going up significantly, they might decide to sell more before
the price drops further, in a cascading effect. And then we may see multiple aborted new bubbles and capitulations.

Second, you completely fail to acknowledge the tremendous buying pressure at several support stops along the way.   There are hundreds of millions of dollars sitting on the sidelines now that would KILL to buy at $60 and much higher.

+1  I see it very unlikely that we will drop below our April highs (the buy pressure below that is enormous). I see nothing technically nor fundamentally at the moment that would suggest that. We just got ahead of ourselves, and this will happen many times going forward as news waves of new money come into the game, and the traders play off this, as far as they can.

Ditto to all that. I just bought a fraction more.

[Spekulatius]

So what do you guys make of the current double top near 900$??
There is no bubble that i know of that has had a double top after a more then 50% retraction. Isnt it a bubble after all? Is it one of the often cited but rarely observed "echo bubbles"?

[SlipperySlope]

So what do you guys make of the current double top near 900$??
There is no bubble that i know of that has had a double top after a more then 50% retraction. Isnt it a bubble after all? Is it one of the often cited but rarely observed "echo bubbles"?

I have been buying fractions during the dips given the growing possibility that the November peak was not collapsed with enough emphasis thus serving as a base for another even greater blowoff rally. It would be technically very significant if the price breaks the all time high on respective exchanges. This breakthrough could occur within days given the strength of the buyers.

At the moment, every one of my small purchases shows a profit.

[Zangelbert Bingledack]

So what do you guys make of the current double top near 900$??
There is no bubble that i know of that has had a double top after a more then 50% retraction. Isnt it a bubble after all? Is it one of the often cited but rarely observed "echo bubbles"?

I think it's probably just the old Bitcoin battering ram chipping away at $1000 like it usually does at major psychological barriers. I recall from springtime that it used to hit a little below a psychological barrier (like 10% below), take a few steps back, ram it again, take a few steps back, then finally break through. Like a battering ram at a castle wall.

Anyway, it would have been very worrying if it hadn't corrected after the insane run earlier this week. We were hoping for some consolidation, and now we have it. So far so good. Launch pad prepped, ready for takeoff. Hopefully avoid thermal curtain failure.

[Spekulatius]

Yes I guess that could be true. I think we will see when we retest the support line thats coming up at around 600$ right now. If we break that I think the double top will take us back to the foot slopes of this rally.

[SlipperySlope]

Onward to a new peak.

Evidence mounts that the November 18 peak was not conclusively collapsed. I expect a larger following bubble. Price doubling rates may again prove to be a good indicator when it comes to predicting the next price peak and date.

[jojo69]

I agree it looks that way SS