Topic: SlipperySlope's Bubble Collapse Journal - page 15. (Read 24795 times)

4 days after the April 9 peak

Issue 1 - Evidence for or against the Bear Case.

I believe that the post-peak negative sentiment will 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.

This is the first Monday after the peak. The flood of new users registering to trade and subsequently verified at Mt. Gox has not really felt the effect of the crash. We know that today more new users will be able to trade dollars for bitcoins. The question is whether enough of them will buy to inspire further new users to register at Mt. Gox. The record from bubble 1 suggests that it will take at least a week for volume to settle down.

Issue 2 - Compare two bitcoin bubbles.

To the extent that comparing the April 10 bubble top with the June 8, 2011 bubble peak is useful, here is the data presented in terms of doubles and halving of USD/BTC prices.

**** Bitcoin Bubble 1 peak occurred June 8, 2011 ****

The way up ...
 0.498 January 31, 2011 -
 0.997 April 15 2011 - doubling time 74 days
 1.99 April 28, 2011 - doubling time 13 days
 3.98 May 10, 2011 - doubling time 12 days
 7.97 May 13, 2011 - doubling time 3 days
15.95 June 4, 2011 - doubling time 22 days
31.90 The high on Wednesday, June 8, 2011 - doubling time 4 days

The way down ...
31.90 The high on Wednesday, June 8, 2011
15.95 June 11, 2011 halving time 3 days
 7.97 August 5, 2011 halving time 55 days
 3.98 October 7, 2011 halving time 63 days
 2.20 November 14, 2011 halving time 38 days

Commentary on Bitcoin Bubble 1

• the bubble price increase is double exponential, i.e. the rate of acceleration is itself increasing
• the up move from 1.99 to 31.90 took 41 days
• the down move from 31.90 to 2.20 took 159 days
• in contrast to the increase to the peak, after the peak the rate of decrease is rather constant, halving every 52 days

**** Bitcoin Bubble 2 peak occurred April 10, 2013  ****

The way up ...
   4.16 December 19, 2011: 8.31 July 16, 2012
   8.31 July 16, 2012 - doubling time 210 days
  16.62 January 21, 2013 - doubling time 189 days
  33.25 March 1, 2013 - doubling time 59 days
  66.50 March 25, 2013 - doubling time 24 days
 133.00 April 3, 2013 - doubling time 9 days
 266.00 Wednesday, April 10, 2013 - doubling time 7 days

The way down ...
 266.00 Wednesday, April 10, 2013
 133.00 April 11 [I am ignoring April 10 low of 60]
  66.50 [I am ignoring April 10 low of 60]
  33.25
  16.62

Commentary on Bitcoin Bubble 2

• the bubble price increase is double exponential
• the sharp move up seems to begin January 7, 2013 at 13.50 - this will be a downside target I think as classic speculative bubbles tend to give back *all* of their bubble gains
• the up move from 13.50 to 266.00 took 93 days
• the down move from 266.00 to approximately 13.50 may like bubble 1 take approximately 160 days, e.g September 17, 2013, and halve in value approximately every 53 days

The price action?

From Mt. Gox on APril 11th
- The number of new account opened went from 60k for March alone to 75k new account created for the first few days of April! We now have roughly 20,000 new accounts created each day.


Where did you get the impression that there is a lack of new buyers?

So why do you think there is a lack of new buyers? Sorry, I'm not sure what post you're referring to.


The gox queue is over 20k, google trends for "bitcoin" has doubled since the peak last week, and the news coverage is growing and much less negative overall than I expected.

/r/bitcoin has had 30% growth this week, bringing it to ~34k subscribers, and I see a few new merchants accepting every day I go on there.
This forum has gained 8k members this month so far.

I don't know what will happen, but there sure seems to be a lot of momentum left.

The bid wall at 75 proved successful this afternoon and prices reached about 125 before turning back down. Like 2011, the Mt.Gox bitcoin exchange is the center of the discussion. DDoS attacks and a poor performing trading engine are to blame, and the uncertainty about trading bitcoins discourage new investors, and frustrate active traders.

I continue to believe that lessons learned from the 2011 crash are useful here when deciding tactics. Because the recent bubble took three months to form, I believe that the downside resolution will take more than a month, maybe two or three months to reach bottom. Impatience is the enemy now. I think that a trader having sold some coin to raise cash must simply hold on to that cash and wait for prices to fall deeply, even in the face of bull traps in the meantime.

As was well said by someone else, the lack of new buyers is like a great weight on the market. Despite the efforts of bargain hunters to prop up prices with bid walls and such, this weight is always present and affects every trade to the downside. Its really just the reverse of how the bubble was formed, when the flood of new buyers doubled prices three times in three months.

It is $94 on MtGox however, this could be Bull Trap #163.

Did you sell at $75? Price is over $100 on bitfloor now 

BTC is going for 30% of what it was two days ago and you want to know if shorting now is a good idea 

[edited to add new posts and to reflect current events]

My principal comments regarding the collapse of April 10, 2013 bubble.

• Day 4 post peak - Compare two bitcoin bubbles.
• Day 5 post peak - Price dropping 10 times faster than back in 2011 bubble.
• Day 7 post peak - How many more seller capitulations before the bottom? ....[this bubble has at least one now]
• Day 11 post peak - Does the recent dramatic recovery from 50 to 136 USD/BTC negate the case for a short term bear market? ....[turned out that it did not]
• Day 12 post peak - Long term chart is awesome
• Day 13 post peak - Sucker's Rally ....[turned out to be a classic one]
• Day 20 post peak - Resistance at $160 ....[and yet unsurpassed]
• Tickets Purchased for the Bagholder's Ball
• Day 21 post peak - 24 hours of selling ....[indeed just the beginning, starting at $145]
• Alert - Perhaps the first, and largest, capitulation is at hand     ....[it was the first capitulation]

• Day 22 post peak - Second day of the Great Capitulation ...[reached a low of $80]
• Day 23 post peak - Third day of the Great Capitulation of 2013
• Day 24 post peak - 24 hours of buying - are we past the bottom? ... [yes, on our way up past $120
• Day 27 post peak - Reversal at $120 confirms primary collapse
• Does resistance trump support at $105? ...[no, prices climbed to $116 the following day]
• Day 28 post peak - Yet-unsurpassed peaks at $266, $166, $149, and $125 conform to classical bubble collapse
• Day 29 post peak - Diminishing volume post-peak conforms to classical bubble collapse
• Milestone Day 30 post peak - bubble 1 collapsed 55% from peak at 30 days, likewise this bubble
• Support trumps resistance at $112 - and breaks upwards ...[and stopped at $123]
• Day 32 post peak - Low volume, sideways price days are becoming more common.
• Day 33 post peak - Volume increased to complete a bearish wedge at $120
• Major post-peak support trendline breakout to the downside on news of Dwolla/Mt.Gox account seizure by U.S. Department of Homeland Security ... [The bad news abated and the breakout reversed at $103]
• Day 57 post peak - Sideways action suggests the collapse is over ... [However on May 26, the Great Slump of 2013 began]
• Day 91 post peak - Recent low of $65 says collapse is not over and could have 3 more months to bottom ... [Wrong! $65 was the bottom]

Here [was] the [intermediate] term bear case in a nutshell ...

• There will be no more enticing and greed-inducing news stories from the media. Now the benchmark is the crash and how speculators lost so much.
• Investor sentiment, especially new investor sentiment has reversed. Impatience to buy has been replaced by caution
• What is the correct valuation of fiat/bitcoin given what we know now? Certainly while the price doubled four times from January, the bitcoin economy did not do as well in percentage growth. Correct valuation depends then mostly on just how much of the run up since January is emotion, e.g. greed.
• If the downtrend continues, then coin holders are tempted to sell coin expecting to buy back for less fiat.

It happened, so now let's discuss ...

Question 1: what is the expected duration of the down trend? My rough guess as argued here is until September 2013.

Question 2: how far down does the trend go? As of May 8, I believe that this bubble will collapse down to a price greater than the high of the previous bubble, e.g. above $32, and lower than the lowest low after the peak so far, i.e. $50. Because bubbles collapse to a price lower than most expect, the bottom could be below $32.

Bitcoin Bubble 1 Peaked June 8, 2011





Bitcoin Bubble 2 Peaked April 10, 2013



Rather than behaving like the 2011 bubble collapse, the April 2013 bubble collapse appears to be a damped oscillation resolved to a price 9x higher than when the bubble began. Continued sideways price movement for the remainder of 2013 would allow the long term price trend to catch up.

When the next big bitcoin bubble arrives, probably in 2014-15, I plan to trade on the expectation that the bubble collapse will be a damped oscillation, featuring several very large price swings.