Topic: Monthly average USD/bitcoin price & trend - page 15. (Read 118205 times)

If we blast off from here, we would be looking at the peak of the bubble for Bitcoin at $10,000 - $50,000 in 2014. However, I can't know when the masses move into Bitcoin. Nor can I know if we return to the former slope. Intuitively it feels a bit early, and I think Bitcoin might exceed $1 trillion global market cap before it is all done. However, I also can't know if the final phase runs longer than the first two phases (assumes the concept of phases with different slopes is even valid at all).



Price = Slope x (10 ^ Time) = 10 ^ (Slope ^ -10) x (10 ^ Time) = 10 ^ ((Slope ^ -10) x Time)

So if we plot Price(log10) = log10(Slope x (10 ^ Time)) = Slope x Time

In other words, the scaling of time by Slope is a constant factor. Meaning roughly capital coming in (and shrinkage of ask liquidity) was increasing at 10 times per constant period.

Thus the initial 12 - 18 month phase was linear in log10 yet with a greater constant slope, thus the capital was still coming in was increasing at 10 times per constant period, yet the rate of capital ingress per unit time was faster.

The second 12 - 18 month phase was also linear in log10 yet with a lower constant slope, thus the capital was still coming in was increasing at 10 times per constant period, yet the rate of capital ingress per unit time was slower.


I don't know what will happen.

But why do you assume the entire life of Bitcoin has to follow one slope?


Everyone loses money in a bubble (if they sell below the price they purchased). What prevents a second bubble?

The reason for the first bubble is easy to understand. These were tech savvy non-professional traders. Since then the institutional money and professional traders have been moving in. After that comes the second group of non-professional traders-- masses.

I think one could make the argument that Bitcoin is not quite ready for the masses to come in and we are still basing with institutional money coming in. In that case, return to trendline or below is even more likely. The institutional money would try to push it down to get in at a lower price, as I argue that Baidu did recently. If a sufficiently powerful entity decides they want to buy at a lower price, then they can possibly arrange some misinterpreted regulatory news to push the price (as we saw with the recent China news which was actually legalizing Bitcoin yet was misunderstood). I can't know this, but I do see the large China pump & dump & repurchase is probably done.

This is textbook bubble.


Which model?

Do you have evidence that the slope of the curve doesn't vary during a mania? I am searching for this data now, but the problem is this price data on the tulip mania is insufficient and the south seas mania was a step function because price was driven by 4 non-continuous financings.

So Bitcoin will be the first global mania that we have really good price data.


Then it goes to < 1% of the moon peak price, but I assume you don't agree that Bitcoin is a bubble. Thus you would discount entirely this possibility. So the danger of hanging on for the moon price is that you likely lose everything, since the waterfall crash side of the peak is very difficult to get out of both psychologically and also dearth of liquidity.

Thus the way to make money on Bitcoin is to sell well before the moon price. Thus maximizing the number of coins invested is the way to maximize gains.


The chance of Bitcoin failing right now is basically 0. Even if there was a technical problem (well there are actually), they will be hidden under the rug at this point. There is too much professional money at stake, any and everything will be done to keep this bubble alive at this nascent stage.

Besides one shouldn't have even half of their networth in Bitcoin.


Or you lose nearly all.

I tried to fit in many kinds of trendlines but all ended up surprisingly close to the one whose growth coefficient k ~ 23%/month.

The original mania phase in 2010-2011 if we measure from start to the bottom of the crash, has the same slope. If we only pick the upward going part, then we have a nice model whose prediction is todamoon, but those who followed it, lost money

I believe you are intelligent enough to actually understand this matter. Even the big bitcoin bubble which will commence in 12-24 months perhaps, will nicely obey the model.


I think this is not necessary. Let's see the gamble that I am doing now (selling half and waiting for buyback). It consists of 2 scenarios one of which will happen:

- I will get to buy back double the sold amount, which will increase my stash by 50%, and then bitcoin likely goes to the moon

- I will never get to buy back, so I have the millions, the trendline buyback price rises, and my stash is permanently 50% smaller BUT this can only happen in connection with the event that Bitcoin goes to the moon.


The first scenario is obviously the optimal. Very good increase in bitcoin holdings after only 1-3 months waiting, and meanwhile some shielding against the total failure of Bitcoin.

The second one is also not a loss. I have a lot of money, and the only thing that causes me not to reinvest the money eventually, is the relentless rise in BTC price. The trendline hits $1 million per BTC in 2016, so either I win or I win.

(I actually did suggest using stop-loss in my diary thread, where I also copied this to.)

Imagine how many are taking profits now at the $1000 psychological level after a quick 10 bagger in a few months this year, and what is their action when the price starts to run away from them? That is how we can see ask liquidity dry up and the price rocket. Because surely they are not taking profits to remain out of Bitcoin because they all expect 10 - 1000X higher prices.

Is the new demand coming in going to offset those taking profits? Bitcoin is suddenly new in China and there is a lot of money there trapped that can't find juicy ROI because the government is cracking down on the stock and real estate market bubbles and there are capital control making it more difficult to move money out of the country, especially for the household sector (the non-professional investors).

Referring to my prior post with the chart history we see two different rates of appreciation. We see the initial mania as the tech savvy rushed in as it started to have some real value around $1. Then we see a log10 linearity fit since that initial bubble was burst. This appears to be a basing activity while Bitcoin's ecosystem has matured enough to be ready for the masses to come in. It appears both of those phases lasted about 12 - 14 months. So if that is true, we should be entering a new phase now.

We are looking at a global investment here. This is the only stock that can be bought from every nation on earth right now.

I am not comfortable with assuming the log10 trendline is the norm. It appears to me it could possibly be a basing pause between the initial mania for the techies and the mass market mania to come. The assumption that the blowoff mania comes at the beginning doesn't normally make sense in markets. They usually come at the end. I am thinking the desire to view Bitcoin as log10 is the desire to assume Bitcoin is a S-curve logistic technology adoption, which I already tried to refute in my prior post.

If you compare the fractional gains that could be made by moving back to trendline (e.g. perhaps at most a double) with the losses to be sustained if the mass mania overpowers (e.g. it could quickly be up another 10X in a few more months), then I think one needs to have stop-losses on their short positions.

For the person who doesn't have time to manage those stop-losses and who is not fully invested, perhaps the wisest strategy is dollar cost averaging, i.e. as it drops buy more.

The chart pattern could be a quick flash crash with a dead-cat bounce and a renewed decline to find a low. This is what normally happens in a market where the new capital rushing in is not the major factor and instead it is the psychology of existing capital looking at that market.

However, Bitcoin may have so much new capital coming in that the psychology of those who rushed to buy the dead-cat bounce may not have enough significance.

Compare the chart of the tulip mania:

Thank you for sharing your analysis. I came to much the same conclusion over the weekend as you did and have hedged 20% of my holding with March '14 sell contracts. I may hedge a little more, though I suspect the best prices to do so are already behind us. If I think the bear has bottomed out before March I might close out my position then to take profits. The thought occurs to me that if a relative neophyte like me is doing this, if I'm right then there are bigger fish who have already done the same. There will be some whales who will be quite happy to see the price fall in the short term.

Bulls make money.
Bears make money.
Pigs...etc.

I constructed a trendline based on daily prices, and calculated through the last and current bubbles.

It is helpful to know what a logarithmic scale means. Basically it means that every 0.1 difference equals to 26% (compounding). Ten times 0.1 compounds to 1.26^10 = 10.

We express the relative undervaluation/overvaluation in logscale, where 1.0 means that the actual value is 10.0x trend and -1.0 means that it is at 0.1x the trend. That extreme valuations we did not see, though.

Spring

At the low point in 14.1., we started the rise from -0.46.
The trendline was crossed in 21.3., at 0.00 (66 days later)
The peak was reached in 9.4., at 0.45 (19 days later)
The low was reached in 7.7., at -0.30 (89 days later)

Autumn

At the low point in 3.10., we started the rise from -0.34.
The trendline was crossed in 9.11., at 0.00 (37 days later)
The peak was reached in 30.11., at 0.46 (21 days later)
The low was reached in TBD

After spending the whole week so far pretty much with these calculations, I can say that I mostly subscribe to the scenario where bitcoin's exchange rate is currently overvalued by more than 100% (0.32 in log scale). Because the overvaluation is so gross and the delusion of fair value so pervasive (I even personally "turned bull" at the ATH after making my initial bearish call in 20.11. at a lower price), it will take 1-3 months to reach the healthy low in relative valuation. It is not guaranteed that the relative low coincides with the absolute low (the cheapest intraday opportunity to buy in April was only 2 days after the bubble pop, whereas the final capitulation happened at a little bit higher level).

Because I am now so sure of this, I will seek the opportunities to trade the downtrend, sell up to 50% of my bitcoins with the intention to buy them back at the trendline, and to instruct the ones in their bitcoin accumulation phase to buy only very limited amounts when there is still air in the price.

Bitcoin is going to the moon, but it is not going to the moon overnight. I watched it go as close as possible to the moon from 0.25 to 32 and then to 2, which was my entry point. Realistically the following 6 months will not see similar development (going from 1000 to 128,000 per bitcoin, without stopping). If they do, then the other half of my bitcoins is worth so much that it gives me enough to think about.

The trendline (which I constructed anew from daily data) is now at 420, indicating that there is not much point to buy anything over 500 from the flashcrashes that will certainly continue during the following days and weeks.

If we allow 60 days of downtrend from the bubblepop (30.11.) to the final capitulation (est. 29.1.), the trendline is approximately at 590. The characteristic of a low is about -0.20...-0.30 relative valuation. To be on the safe side, we take -0.20, which corresponds to the target price of 372. To add some safety margin, the highest bids should be at 450 or so.

So now it's the time to be right and sit tight (this time with the fiat of your choice). Objectively bitcoin is now expensive, and speculative selling at prices above 800 is a very good proposition. If you have been thinking where I've been the last few days, the answer is: selling. And running excel calculations. and selling some more.

Let's try to quantify. Global wealth is $241 trillion. Global GDP is roughly $50 trillion for 2013. Global debt is roughly 3x GDP (and that doesn't even include the $quadrillion in derivatives), thus global debt is roughly $150 trillion.

So in theory that nets out $91 trillion in net worth. However, not all of that is liquid. Probably much of it is tied up in real estate. And it is not equally distributed, and most of that positive net worth is owned by the top 3%. Credit Suisse says the richest 1% own 46% of the wealth, so at $120 trillion that must mean the rest of society is net negative net worth once the global debt is written down. Do you think they want to let us "little guys" compete with them?

So I stick by the $15 trillion maximum market cap as being a reasonable rough guesstimate. Much depends on if debt is still readily available. I happened to think 2016 is the year the debt crisis blows up worse than 2008 (but who knows for sure).

Appreciate your post, Anony. It was very interesting.  :-D

Relax I edited and added that to my post after I read arklan's commendable comment which immediately followed mine.

Why did I bother to mention (a few off words in a very long comment) that maybe I know something about how to increase the currency usage of Bitcoin and other crypto-currencies? Does that mean I need to justify it as if reputation is really means anything any way. Everything is conjecture until it is reality.

I would be grateful if Risto decides to delete all the posts on this tangent.

Call me naive, but maybe bubbles don't pop as hard any more these days and it's already over.

Yes, there may be wishful thinking behind this. But think about it: each "bubble" has "popped" less hard and quicker than the one before. So maybe we're already on the way to break the ATH (Risto, you can then buy again at the ATH, which is best point to buy).

Just a thought.

First, I am not clear yet if price must return to the calculated trendline which assumes linearity over log base 10 apparently. I need to do some curve fitting on past bubble manias to see if the exponential rate remained constant during the blow off phase. Bitcoin appears to have reached the maturity phase (no longer in the stage where those who were holding as a wildly speculative option and a very small % of their net worth and were working hard on it as a currency) and is preparing to enter the blow off stage when the dumb masses come rushing in.

The Austrian theory of how a commodity becomes money is that first it is widely sought and held as a commodity, then this naturally leads to it being widely acceptable as medium-of-exchange.

The problem Bitcoin has is that it is not held for being a commodity that it isn't, rather for the promise of being a currency in the future. It puts the cart before the horse, and its intrinsic value as a commodity relies on the medium-of-exchange which can't come before its intrinsic value according to the Austrian theory above.

We see that price appreciation is radically outpacing growth of transactions that are orthogonal to the speculation and SatoshiDice dust. Thus we know the future intrinsic value is orders-of-magnitude lower than than the future market cap. The current market cap is not so huge and the current ecosystem has much potential, so we can't say much about the current intrinsic value which hasn't yet reached the potential valuation of what is already in place. It is just that the price is moving (nominally in dollars) much faster than the currency ecosystem.

Lets look at it psychologically. When the BTC price stops rising because the capital that can and will be moved into Bitcoin has slowed (or peaked), then those who own $100,000 to $millions (which probably includes all those who now own $10,000+ of BTC) are going to want to deploy their capital productively. Unless Bitcoin is as widely accepted as the dollar, then they will find their opportunities to invest BTC in businesses without it being converted to dollars will be limited and it will prevent them from optimizing their investments.

So capital will leave BTC to the point that each person holds in BTC what is reasonable for the opportunities of medium-of-exchange that are available. Since BTC price is rising so fast, we are looking at market cap saturation no latter than 2016 ($1m per BTC x 15m coins = $15 trillion) unless the general public is selling assets to buy Bitcoin, but more likely 2014 or 2015. That is not enough time to develop a wide enough medium-of-exchange ecosystem.

My expectation is the market cap will fall back to less than $1 trillion, probably in the 10 to 100 $billion range, i.e. the level when it reached maturity stage and before the mass mania enveloped and factoring in some growth in use as currency in the interim. Thus I am expecting a post-crash price for BTC of roughly $500 to $5000. The higher guesstimate assumes the bubble runs another 3 years to $1 million per BTC. I don't know how widely this bubble is going to spread in the general population. If the majority avoid it, then we might top out at $1 trillion market cap which would be $50,000 per BTC which would be early 2015ish, and thus I would expect the $500 range for the intrinsic currency value.

You see I entirely believe in the concept of how we take over the fiat system, it is just that Bitcoin's price is moving up too fast. (this is orthogonal to my view that Bitcoin is also technically flawed and would succumb to the government any way)

Some of us will be trying to do something to fix this. My projections above do not take into account if any such altcoin could moderate Bitcoin and thus make our crypto-currency ascent more sustainable and with a higher floor for the more developed intrinsic value given more time to develop with a moderation of price appreciation due to competition and dilution of the coin money supply.

Note that hitech markets can develop much faster than physical markets. I have a specific idea of how to make crypto-currency widely used as a currency, i.e. that the merchant is also the customer and going after facebook with this. As some of you may know, I created the world's first social network with 1 million users when the internet population was 100 million.

If I have time, I will take a look at the curve fitting to BTC price and comment later.

Good luck to all.

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Okay let's consider the following possibility. It appears to me to be an initial mania among the tech early adopters, then a maturity phase, and now entering the blow up mass mania phase. This pace of price appreciation to $10,000 by June 2014, will pull in the masses. It will be all over the news in 2014.

Bear in mind the psychology of the following chart. Movements from $10 to $100 are not as worrisome (envious) to the general population as movements from $100 to $1000 and then from $1000 to $10,000. And that is even not factoring in potential synergistic acceleration I am positing below. It is not that someone couldn't have invested the same amount and made the same 10x gain, rather it is that the market cap relative to the world's net worth is becoming more significant. And people sense this intuitively in the level of nominal price rises and the fact that more noise is made (in the news, word-of-mouth, investment newsletters, etc) with larger market cap invested.

I am totally noob in this ,but doesnt the media and positivie news and etc. affect the trendline? Why no matter what the price has to meet the trendline?

But should we take into consideration that there are more people involved, or that own BTC now and that will cause less volatility so the price should not drop as much?  I think that has already been shown in this last "crash" or "correction."

Of course, it is probably wise to consider the "worst case scenario" and past behavior could predict future behavior.  I just think that we might be entering some uncharted territory now.

OP updated to the best chart (by tonico).

I did some very interesting analysis re:the similarities of relative overvaluation in April and now. In April we were "only" about 3.2x the then current trendline when the bubble popped.

Now the high value has been similarly 3.3x (at ATH).

If the bubbles compare, expect $400s to be visited not only briefly but repeatedly.

Yes, I am open to a new chart. But one that shows $1,000,000 next year will not make me comfortable. 

@Rampion, yes I totally agree that buying coins is more profitable than mining, the vast majority of the time.

Just look at the Sea South Bubble chart. That kind of growth is ridiculous compared to Bitcoin. What you have there, a ten-fold increase before going bust to pre-bubble levels?

Compare that to Bitcoin. From $0.05 (or even less if you count the "Sirius trade") to $1242 in 3 phases:

• 2011: from $0.8 to $32, with a correction down to $1.98
• early 2013: from $12 to $266, with a correction down to $50
• late 2013: from $145 to $1242, with a correction down to....

Read carefully those numbers and compare them with any other bubble you can remember... I've never known a bubble that behaved as Bitcoin is behaving. The bottoms are way higher than the "start of the bubble"... Which just mean they were not bubbles.

Regarding some interesting quotes:


A rational plan like the one outlined in the OP protects you from that emotional and dumb behavior. You need to have targets, and stick with them. In Bitcoin, one of that targets has to be to keep a portion of your stash for the very long run - but you can gradually cash out a % or "rake" of your coins giving "zero fucks" about what the price does next. You need to enjoy the profits at some point, otherwise you are deluding yourself and you will get overemotional, which will lead to mistakes.


This is ironic and gives you some perspective on Bitcoin's revolutionary nature. "Newton purchased more stocks at more than three times the price of his original stake"? Well, most of my coins were bought in the $12-$20 range - but I've bought quite a lot also on the $67-$100 range during this summer. Paraphrasing the South Sea Bubble text, "Rampion purchased more BTC at five to ten times the price of his original stake"....

And I know I'm not alone in here.

Were those cheap coins? You can bet they were.

Was it a mistake? You can bet it wasn't.

For good or bad, Bitcoin will be in history books.

Interesting thought. I will have to consider the implications of that. Not sure it would make the graph look much different, might extend the time frame significantly as sequential waves of adoption hit their stride. (Just first thought)

____________


On the whole, I expect adoption growth to follow and support the price. No surprise there. The speculation actually encourages adoption growth, and creates a virtuous cycle - as we have seen. We may get ahead of this, and occasionally behind as we go - we humans/markets are crazy emotional - and speculation is most often ahead of the "true value" adoption curve as the price/value-finding mechanism works its magic. But the value of the bitcoin network ultimately depends on adoption and ubiquity. Those are the numbers I am watching. And until those numbers start in the other direction, or slow down significantly, I am very confident in price growth. The more real people and businesses accessing and trusting the btc network, the higher the ultimate price. Of course restating the obvious for most of us here.

And now for something more sobering - just for fun...

Thought you all might enjoy this post that showed up in my inbox this morning. This chart was circulating back in April too. It was sent to caution folks about the bubble in equities, but is certainly a cautionary tale for those of us who think/know we are smarter than the average bear (Yogi, and market). I don't believe this is bitcoin's future,  but it reminds and reinforces why a Risto-type SSS plan or comparable is essential - no matter how bullish and smart we think we are.


"An early example is the case of Sir Isaac Newton and the South Sea Company, which was established in the early 18th Century and granted a monopoly on trade in the South Seas in exchange for assuming England's war debt.

Investors warmed to the appeal of this monopoly and the company's shares began their rise.

Britain's most celebrated scientist was not immune to the monetary charms of the South Sea Company, and in early 1720 he profited handsomely from his stake. Having cashed in his chips, he then watched with some perturbation as stock in the company continued to rise.

In the words of Lord Overstone, no warning on earth can save people determined to grow suddenly rich.

Newton went on to repurchase a good deal more South Sea Company shares at more than three times the price of his original stake, and then proceeded to lose £20,000 (which, in 1720, amounted to almost all his life savings).

This prompted him to add, allegedly, that "I can calculate the movement of stars, but not the madness of men."



The chart of the South Sea Company's stock price, and effectively of Newton's emotional journey from greed to satisfaction and then from envy and more greed, ending in despair, is shown above. "

Those of you who know more about this example may argue that this is not like btc at all - granted. But we are still dealing with human beings - even in a new crypto-math age.

Difficulty does not drive price.

FYI: mining with ASICs is currently wildly profitable in fiat terms, but on the contrary it would have been a better investment to buy directly BTC with the money spent on the miner. This has been a constant historically - buying coins is more profitable than mining 90% of the times.

Real-life example & figures:

A batch #1 550GH/s Jupiter unit costed $7000 + shipping + VAT ($8.500 - $9.500 in total depending on the shipping costs to your location and your local VAT); it has mined between 38 and 49 bitcoins up to date, depending on your spot in the delivery queue.

At the current difficulty that 550GH/s unit is still generating aprox. 0.3 BTC per day (roughly $270 a day), and at a standard rate of $0.15 kw/h the power it draws costs only $2.16/day - wildly profitable in fiat terms as you see.

On the other hand, when those units were paid (3rd and 4th June 2013), $7000+shipping+VAT would have bought between 65 BTC and 73 BTC, depending on the final cost of the miner based on your location and VAT. Its possible that those machines will never mine that amount of coins. Plus, if you had waited till July, you could have bought sub-$100 coins - definitely the most profitable move.

One aspect that may be throwing the trend higher is the ASIC revolution. They only started shipping since Spring/Summer. Which led to MUCH higher difficulty, leading to higher price. I would feel comfy buying any three digit cheapies at this point. The next batches are about double the current hashing power. The only thing that concerns me is that mining is quickly becoming a rich-person-only hobby. Wondering if this will ultimately kill bitcoin within a couple of years.

This kind of decisions are best that everybody makes for himself. As for me, I am now double short because the dcb will probably bounce at 926 (BS), 988 (Gox) and it is looking toppish. Also it is over trendline.

According to SSS, you should not care though