Thursday, November 28, 2013

The Bitcoin Bubble, or Is It? Two Charts, Historical Price Movement, and the Conspiracy


I. Two Charts


I wish I wasn’t making this post and I hope I’m wrong. I love the concept of Bitcoin and the prospect of the decentralization of power brought about by the introduction of “an open source peer-to-peer electronic money and payment network” and the inevitable collapse of fiat currencies that are controlled by central banks which are in the business of transferring wealth from main street to Wall Street.

I’ve been tracking bitcoin for almost three years, since it was trading for less than a dollar. I even mined it a little a couple of years ago and recommended friends to buy them. Now that bitcoin has breached $1,200 and counting, would I still be giving it a buy recommendation? Absolutely not. Would I be recommending friends to keep most of their bitcoins at these valuations? Absolutely not. I would be telling them to sell almost all of their holdings, letting 1% ride. This is also one of the great features of bitcoin; very few early adopters should still be holding in any type of market like this.

Will bitcoin reach ten thousand, fifty thousand, or a million dollars? Will it do it in a few weeks, a few months, a few years, or a few decades once the full impact of our bubble economy is felt and the fiat currency devaluations begin? That’s anyone’s guess.

Below you will find a bitcoin chart for the last 2 years, and Jean-Paul Rodrigue’s chart of the four phases of a bubble. The similarities are uncanny.

click image to enlarge - source

click image to enlarge - source

Does this mean that bitcoin and other secure digital currencies are not a valid form of currency? Absolutely not. Does this mean that they do not have a future? Absolutely not. I actually believe the opposite. The future of commerce is digital, global, decentralized, open source and secure. It’s everything that bitcoin offers; I just think we’re in a bubble.


II. Historical Price Movement


There is something very beautiful about watching price movements; it’s like watching a horse race and listening to the caller go mad with excitement. I just came across a post just like this for bitcoin on the bitcoin subReddit and have to repost it here to preserve some history, just in case things get deleted. Thank you voiceinthevoid for putting it together.
Why $1000 is irrelevant.

The first major bitcoin bubble started on October 3rd, 2010, when BTC was priced at $0.06. Fears of ponzi schemes and other things led the price to crash down to $0.01, and a massive selloff and buying frenzy started. In a period of two days, the psychological barrier of $0.10 was breached, and the price was pushed further up to $0.30 before hitting a plateau. In a very short period of time, many people made 5x their money.

The next psychological barrier, of $1.00, was hit a month later, as people were still rallying. It hovered around $1.00 for 2 months, as people were unsure what was to happen next, and many people BTC was overpriced. By April of 2011, this uncertainty had caused an erosion in the marketplace, and bitcoin was down to $0.75. Many people who had missed out on the $1 boat saw this as an opportunity to buy in, and the prices skyrocketed. In 2 months time, the price had peaked at $30. This cause a massive sell off, mostly from people who had thousands of BTC from the pre $0.06 days, and over the course of the next 6 months BTC slowly went down to only being worth $2.25. This was the first big selloff and a many first adopters ended up cashing out in this 6 month downtrend.

In just over a year, bitcoin had gone from $0.06 to $30 and back down to $2.50. For those who bought in at $0.01 and sold at $30, they saw a 3000 fold return on their investment.

The second major bitcoin bubble was significantly less intense than the first. It started in February of 2013 when the previous all time high of $30, of the April 2011 bubble, was breached. To be fair, the value of BTC had slowly been gaining steam, but as that psychological barrier of $30 was reached, a sudden upwards trend occurred. By the end of March 2013, just a month in, the $100 barrier was breached, buying increased even further, pushing the price up to just shy of $270 by the beginning of April. People started to sell, in order to realize their gains, and a panic ensued, in which the price dropped down to a low of $50 within the span of a week.

In this bubble, many of the second wave adopters ended up cashing out. For those that bought in at or around $30 and sold at the peak, they saw a 8-9 fold return. Pretty insignificant compared to the 500x return of the previous major bubble. What is significant about this second bubble, is right after the crash down to $50 there was a surge back up to $140, which subsequently mini crashed. This is significant because that number, $140, was the telltale sign of when the next bubble was to start.

The third major bitcoin bubble is occurring right now, in November of 2013. In the time between the last bubble and now, the price of bitcoin has fluctuated, but stayed well within the extremes of the peak and trough of the April bubble. The November 2013 bubble almost started in August of 2013, when the peak of $140 was reached. It did not occur though, because there was a selloff from those who bought in at the April 20th 2013 post crash rebound. Not even two weeks later, $140 was tested again, and there was a selloff again, although not as much as just a few weeks earlier. This caused a newfound stability as people learned to trust BTC again. By the end of September 2013 $140 was tested again and there was a selloff, primarily by those who has bought in at the last two $140 tests, and those who believed that $140 was now a hard ceiling that was never going to be breached. The selloff rebounded though, and a few days of utter stability just under $140 was seen, which was enough to convince people that $140 was not a hard ceiling at all. This eased peoples minds, and they began to buy. In two weeks time, the price was in the $220 region, and many people, remembering the prior bubble, sold, temporarly driving the price down, but in less than 2 weeks the price recovered, and this also gave people a huge trust that the price was going to continue upwards.

Somewhere around $400, China got involved, and all hell broke loose. In just a weeks time, we had gone from $400 to $800, which caused a selloff panic driving the price down to $450 in just one day. This was just a minor hiccup thought, and the rally continued upwards, and in just 1 week it broke the psychological barrier of $1000.

Nobody knows what's going to happen next. No one has a crystal ball, and past performance is no indicator of future performance. Yet if we look at the previous major bubbles, what we see is that in no case is the breaking of a psychological barrier the reason for a selloff. Selloffs happen when that barrier is broken in such an intense way as to render it meaningless and abstract. Selloffs happen when multiple psychological barriers are broken in quick succession. They happen when there is a period for many people to make double, triple, or 10x their money in return in a short period of time. As time passes, the investment needed to double or triple or make 10x your money gets much steeper. This is the reason why we will never see the types of bubbles as the first two historical bubbles ever again. The first bubble had a huge volumetric selloff due to cheap coin. The second bubble had volume because the period of time between the first two bubbles had stability for long enough (3 years) plus a positive ROI on mining to create a volume.

This bubble is different though. There is a much higher dispersion of coins due to more people involved in mining, and there has also been less time for buyers to accumulate coins. The value of coins has gone up, but the number that people are playing with has dropped significantly. If we compare bubble to bubble, log style, then the current rally we are in, is only about halfway to the peak of the rally that caused the April 2013 bubble. The psychological barrier of $1000 is about as meaningful to us now as the psychological barrier, of $100, was to the April bubble - which is to say it's having no effect on stopping anything.

China being involved puts a whole new spin on things. No longer is $1000 any sort of psychological barrier, as they are looking at the price in their own currency. Certainly 8888 is the big psychological barrier for them, but they are also buying BTC not for speculative reasons, but as a store of wealth that is outside the influence of their own government.

I think this rally will continue for a long time, relatively speaking. I think we will see $2000 and $3000 broken before the madness sets in, which will cause the selloff. But even then, post selloff, I doubt we will be under $2000.


III. The Conspiracy


As for the Conspiracy; there has been some talk that the government is behind Bitcoin (2), so I thought I’d preserve a little thread that was posted on the Conspiracy subReddit. The comments are well worth reading. Thank you nicolaosq for bringing up the topic.
Bitcoin Was Created By DARPA

There is no way to stop what is going to happen to bitcoin. It's an issue of sociology. It's an issue of human greed. It's an issue as to WHO created bitcoin and WHY.

Who is the single largest holder of BTC right now? "Satoshi". Who is he? I will say it again. NSA/DARPA created bitcoin under the guidance of the IMF. The IMF has been openly calling for a digital, one-world, deflationary currency for 2 decades. OPENLY. It has been discussed and promoted OPENLY at G8 and G20 summits.

from the early 90s-96 the NSA was OPENLY investigating cryptographic money networks.

http://groups.csail.mit.edu/mac/classes/6.805/articles/money/nsamint/nsamint.htm

One of their researchers and investigators is a man named Tatsuaki Okamoto. When they actively started writing the code they chose the pseudonym "Satoshi Nakamura" to ultimately promote the idea that Tatsuaki Okamoto to any and all who investigated the source of bitcoin long enough. But Tatsuaki Okamoto is just a cog. He's not some rogue savoir out to topple centralized banks. Not at all. He is a crypto scientist who was paid by government and intelligence agencies to do research.

Bitcoin is an NSA/DARPA lab set into the wild. Scientific technology grants issued by government and intelligence agencies are how these labs are funded and promoted. The regulation and control of bitcoin has been actively developed alongside the development of the network. In fact, the controls, policy and regulation are WAY WAY more mature than the bitcoin protocol itself. That's why we see things like Greenlist written into law without a mention of bitcoin until recently.

This is not tinfoil hattish. This is just reality. No one forced ANYONE to believe the Satoshi fairytale.. The libertarian Satoshi myth has been promoted in stealth to specifically promote ADOPTION and DEVELOPMENT. It's no different than the internet and WWW itself. EXACTLY the same. That is why you see many www early adopters saying bitcoin "feels" the same as the early internet. I am one of those people.

In 94-96 the public internet was ALL about freedom of information. FREE COMMUNICATION. It was ALL about liberty and freedom. I wish i could transport some of you back in time so you could see for yourselves. The promise of free phonecalls with the freeworlddialup, free media with IUMA and the MBONE. All this freedom and liberty had people pouring their heart and soul into developing it. Now look at it. Facebook, google.. it is a GIANT SURVEILLANCE grid. And if you look for and read DARPA/NSA docs from the 80s and early 90s that was what it was always meant to be. I am not discounting all the socially great things that happen online.. But from the perspective of DARPA/NSA and control freaks.. it was created for the express purpose of control. A military purpose. A strategic purpose.

What is bitcoin? Bitcoin IS the one world digital currency. We all have a deterministic UUID that has been generated from our biometric data. This UUID will be related to all your datastores. This UUID is your mark. This UUID is what is used to buy and sell online and in the real world. This UUID is the primary key in your Greenlist identity.

Coinbase, blockchain.info and it would appear Coinsetter are inline to be the first to roll out the incoming policy and regulation. This policy and regulation is WORLD WIDE. It is CORPORATE. It is not about governments. Governments ADOPT corporate organized policies. If you think this is new than you need to investigate ACH and NACHA. https://www.nacha.org/aboutus

http://www.slideshare.net/Earthport/nacha-payments-2013-complementary-paths-to-global-ach-earthport-federal-reserve-financial-services-hsbc

Bitcoin is THEIR network. And for the minority early adopters that is going to be a hard pill to swallow.. But for those in the know.. Like Gavin, it's PAYDAY. Realization and monetization of their massive bitcoin holdings is being guaranteed by regulators. That is why they are all literally RUSHING to regulate.

Legitimization of bitcoin is all about hosted wallets. The centralization of bitcoin. Hosted wallet providers approve/dissaprove transactions before they are actually issued on the network. Greenlist enabled wallets will be the fastest. (offline transactions). Greenlist enabled wallets will be hooked directly to your bank account, ease of buying and selling. Greenlist enabled exchanges will have the largest market with the best prices. Greenlist enabled wallets will completely eliminate risk of stolen coins. No more security worries AT ALL. And this is what the masses have come to expect. And this is why it's going to happen. And Greenlisted wallets will be accepted everywhere. And in the physical world you will identify yourself and your wallet with your biometrics.

https://bitcointalk.org/index.php?topic=173715.0

TL;DR bitcoin is a global digital currency, regulation was created in tandem with development and adoption, bitcoin is not and never was meant to be a liberty promoting value exchange. There is no "satoshi". The central banks are already the largest holders of bitcoin. Bitcoin IS going to the moon because of this.
Hope I don’t get burnt for this post, but it needed to be said and I needed to archive it. Happy investing, trading, subverting, or whatever your gig is.

4 comments:

  1. as far as i can tell, most of the movement up in this last bubble (past 800 or so) has been due to brief levels of high volume, big fish buying in. the vast majority of its cheerleaders online can't affect price very much anymore. other than the big fish buying in the trading volume has been declining, i think.

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  2. Also, its important to remember how much the US government loves to operate in black market networks, and through asymmetric "fourth generation warfare." Imagine coupling real time drone awareness, bitcoins/phone based micropayments, and 4GW insurgent groups, and you'll get an idea of the efficiency with which they'll be able to create instant chaos in the future.

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  3. "When they actively started writing the code they chose the pseudonym "Satoshi Nakamura" to ultimately promote the idea that Tatsuaki Okamoto to any and all who investigated the source of bitcoin long enough"

    You provided no proof for that claim. Seeing how it's central to your conspiracy THEORY... you might want to think a little harder about what you write.

    Lots of speculation based on personal feelings. Which I can't help but feel is the result of your not buying.

    "And for the minority early adopters that is going to be a hard pill to swallow"

    Sorry but the only thing I've been swallowing is champagne xD.

    It's GLOBAL IS IT? Well friend, 40% of the world doesn't even have electricity so try again. Know what am trying? It's one of the most exciting developments in bitcoin to date. That is, the acceptance of them by charities. Silly numbers make a tangible difference in the real world.

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