With Bitcoin Prices Gone Ballistic, Normal Analyses Don't Apply!
As I write this, bitcoin breached $4,164. Just a few hours ago, the king of cryptocurrency assets was trading around $3,900. And approximately 36 hours prior to the time of writing, bitcoin had just exceeded the $3,400 barrier. In short, if you owned one bitcoin, you just made over $760 in less than two days. Not bad for an investment the mainstream media deemed unsustainable.
(*This article originally ran on Crush The Street -- https://crushthestreet.com/articles/breaking-news/bitcoin-prices-ballistic-normal-analyses-apply)
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In the few days since the August 1st bitcoin hardfork, the cryptocurrency has astounded everyone, from hardened veterans to passersby. On paper, making $700 or more per unit of investment sounds absolutely phenomenal, and it is. However, percentage-wise, it's not at all unexpected. For instance, a single bitcoin netted $1,446 since the hardfork. That works out to a 53% gain.
No investor would ever turn down 53%, especially for two weeks of trading. But in reality, crypto markets are known for dramatic swings in valuation. Again, while the percentage move is quite strong, we've seen bitcoin prices and other cryptocurrency assets produce much more powerful swings. The recent bull market in ethereum prior to the selloff is a great example.
I see three takeaways from the resurgence in bitcoin prices:
• Bitcoin looks parabolic, but it's not -- Pull up a standard, nominal-basis chart of bitcoin prices, and you'll see a line shooting straight up for the moon. The instantaneous gut reaction is that such moves are not sustainable, akin to every bubble market in human history. But observe the cryptocurrency in logarithmic terms and you'll see a completely different picture.
• Normal analyses don't apply -- Unless comparing bitcoin in the short term, utilizing the standard, nominal price basis for longer-term analysis simply won't cut it. Even looking at bitcoin prices year-to-date is problematic as the differential is roughly 300%!
• Bitcoin is here to stay -- Despite being the old dog in the crypto markets, and a hardfork event that was supposed to represent an existential threat, bitcoin is still the cryptocurrency to beat. That tells me that it still has plenty of life left, and that we're probably in the early stages of bitcoin's potential.
Even in the "Wild West" of crypto markets, we still see a flight to quality. People aren't necessarily buying the cheapest digital junk they can find. That's one of the reasons why bitcoin prices have surged recently.
The other reason is that the crypto markets are just beginning its quest towards mainstream integration and normalization. Bitcoin is the cryptos' best representative, and therefore, it's receiving the handsomest rewards.
We've never before seen a single asset dominate a market that has well over 800 significant participants. Both volume and valuation are going to be fairly nutty for the foreseeable future. That's why utilizing normal analytical procedures developed from analog markets to ascertain bitcoin's next move could be a fool's errand.
wow Very interesting Really beautiful work, @bullishmoney Thank you for sharing
Most parabolic charts look pretty normal when taking the log. Also you log char only goes to March of 2017. The crazy action happens from May to Aug.
I think we need to understand the big runup in bitcoin and altcoins early this summer. The dip in late July was obvious due to the uncertainty of the hardfork on Aug 1. Now that it seemed to be ok, bitcoin is surging again. But is it sustainable, no one knows.
Most people seasoned in investing in various markets will not be surprised or alarmed if there is a decent retraction in the price of bitcoin (and altcoins). It can still be a great investment for the long term (just buy and hold).
How does this differ from some of the crazy IPOs of tech companies in 1999 before the big tech crash? Somethings, the more things change, the more they stay the same.
I think your right to look in logarithmic terms.
The other big take away is that we have an outlier here. The reason it isn't a bubble is because were possibly experiencing the biggest monetary change in thousands of years. This is like when paper money was first invented.
Trying to apply the standard finance rules to bitcoin seems futile.
It is really fun to watch people with really heavy stock market backgrounds slowly come through the stages of accepting bitcoin.
I love the stock market. It took me doubting from $600 to $1800 before I could break my paradigm.
Crazy times. Thanks for your post.
People are preferencing Bitcoin over gold in their flight-to-safety assets. That's very telling @bullishmoney.
Ну наконец-то!..я долго ждал,когда вы это озвучите..)...Поздравляю!Очень хорошо!..)..особенно сильно последняя фраза..