Especially with the CME futures trading coming up this month, it's likely we will see a lot more bullish moves.
This is an interesting analysis somebody recently posted at /r/bitcoin:
Quote
I thought I’d share some of my stock market knowledge to help my fellow HODLers get a perspective on the CME futures that will be launching soon.
First let me explain a bit of history: in 1982 CME group launched futures on the S&P500.
What happened next? The stock market went on a spectacular run for 5 years until it eventually crashed in 1987.
Why does this matter for Bitcoin? Because I believe a similar story is about to unfold. This story is the fundamental story about adding leverage to a new underlying asset.
Bitcoin is a relatively “unleveraged” asset as compared to other financial assets. It’s new, it’s untainted. This is significant because of the mechanics of market prices and the future potential of market prices.
When something enters a levering stage, like Bitcoin is about to, the mechanics of the market are HEAVILY weighted to the buy side and not the sell side. Why? Because to be a seller you MUST be a previous buyer (or if you’re shorting, the supply comes from a previous buyer). This may sound weird, but the potential capacity to sell is a function of those who previously bought. This is why in an early market like Bitcoin it’s very hard for it to consistently fall as there’s not a lot of buyers yet built into the price. It takes years and years of accumulation and volatility to create a normalized market. When it’s new, especially pre leverage, it’s very easy to bid it up.
When the CME futures are added, it will likely lead to spectacular rallies, but you need to arm yourself with the knowledge that the eventual buying will plant the seeds of the future capacity to panic.
This is what happened in 1987: The stock market had a 3 day wipeout of over 22%. It took 5 years to develop the buy side enough to create the conditions for panic. This was caused by the CME futures in 1982.
Even since 1987, there has never been a crash of similar magnitude, because that initial levering stage was eventually normalized and a healthy market now exists on both bid side and ask side (sell side).
Why do I tell you this? I want to arm you with expectations to keep your wits when it all goes down. The crash on Bitcoin will likely be of many magnitudes deadlier than the stock market. We just had a 29% correction and it was frankly less than the last two. 20-40% corrections are standard in Bitcoin. When we have the futures levered crash, it’ll likely be 50-60%+. This will be hard on your psychological commitment. Prices do funny things to people’s perception, just like how BCH rose and now suddenly everyone thinks it’s a BTC contender. (Nothing’s changed, price was just pumped up and psychology affected.)
So first thing: prepare for that eventual crash, I suspect it’ll take 1-3 years to create the conditions for an extreme sell side due to leveraging. This sell will start and accelerate, hitting stop losses and margin calls, which is “mechanical selling”. The mechanical selling (forced selling) will cascade and create a feedback loop where more margin calls are hit, more stop losses, etc etc until almost all profits of the last year or 2 are wiped. Combined with the emotional panic caused by extreme falling prices, it will make people think Bitcoin isn’t real and abandon it.
Next thing: the 1987 crash, while devastating in many ways, was completely recovered by the stock market in 8 months. Seriously! The worst crash ever was repaired in 8 months and the market has been much more healthy since then. It is up dramatically since those days, and that crash was just a blip on the screen.
The same will happen with Bitcoin, but my fear is that crash will be worse than even wallsteeters can handle, and it may shake you HODLers to the core.
But if you understand that the powerful selling is just a function of the leveraged previous buying, it’s just fundamentally an opportunity.
I will ride this hard as we lever up, and after an extreme period of euphoria, when Bitcoin is on every front page, when every HODLer owns a mansion, when your government-loving socialist neighbour is asking for your help converting money to Bitcoin, I’ll be lightening up heavily, waiting for the crash. I will bet everything at the bottom of the crash, and sail off into the sunset a crypto-god.
Good luck guys. I hope you weather the next 1-3 years with great savvy.
First let me explain a bit of history: in 1982 CME group launched futures on the S&P500.
What happened next? The stock market went on a spectacular run for 5 years until it eventually crashed in 1987.
Why does this matter for Bitcoin? Because I believe a similar story is about to unfold. This story is the fundamental story about adding leverage to a new underlying asset.
Bitcoin is a relatively “unleveraged” asset as compared to other financial assets. It’s new, it’s untainted. This is significant because of the mechanics of market prices and the future potential of market prices.
When something enters a levering stage, like Bitcoin is about to, the mechanics of the market are HEAVILY weighted to the buy side and not the sell side. Why? Because to be a seller you MUST be a previous buyer (or if you’re shorting, the supply comes from a previous buyer). This may sound weird, but the potential capacity to sell is a function of those who previously bought. This is why in an early market like Bitcoin it’s very hard for it to consistently fall as there’s not a lot of buyers yet built into the price. It takes years and years of accumulation and volatility to create a normalized market. When it’s new, especially pre leverage, it’s very easy to bid it up.
When the CME futures are added, it will likely lead to spectacular rallies, but you need to arm yourself with the knowledge that the eventual buying will plant the seeds of the future capacity to panic.
This is what happened in 1987: The stock market had a 3 day wipeout of over 22%. It took 5 years to develop the buy side enough to create the conditions for panic. This was caused by the CME futures in 1982.
Even since 1987, there has never been a crash of similar magnitude, because that initial levering stage was eventually normalized and a healthy market now exists on both bid side and ask side (sell side).
Why do I tell you this? I want to arm you with expectations to keep your wits when it all goes down. The crash on Bitcoin will likely be of many magnitudes deadlier than the stock market. We just had a 29% correction and it was frankly less than the last two. 20-40% corrections are standard in Bitcoin. When we have the futures levered crash, it’ll likely be 50-60%+. This will be hard on your psychological commitment. Prices do funny things to people’s perception, just like how BCH rose and now suddenly everyone thinks it’s a BTC contender. (Nothing’s changed, price was just pumped up and psychology affected.)
So first thing: prepare for that eventual crash, I suspect it’ll take 1-3 years to create the conditions for an extreme sell side due to leveraging. This sell will start and accelerate, hitting stop losses and margin calls, which is “mechanical selling”. The mechanical selling (forced selling) will cascade and create a feedback loop where more margin calls are hit, more stop losses, etc etc until almost all profits of the last year or 2 are wiped. Combined with the emotional panic caused by extreme falling prices, it will make people think Bitcoin isn’t real and abandon it.
Next thing: the 1987 crash, while devastating in many ways, was completely recovered by the stock market in 8 months. Seriously! The worst crash ever was repaired in 8 months and the market has been much more healthy since then. It is up dramatically since those days, and that crash was just a blip on the screen.
The same will happen with Bitcoin, but my fear is that crash will be worse than even wallsteeters can handle, and it may shake you HODLers to the core.
But if you understand that the powerful selling is just a function of the leveraged previous buying, it’s just fundamentally an opportunity.
I will ride this hard as we lever up, and after an extreme period of euphoria, when Bitcoin is on every front page, when every HODLer owns a mansion, when your government-loving socialist neighbour is asking for your help converting money to Bitcoin, I’ll be lightening up heavily, waiting for the crash. I will bet everything at the bottom of the crash, and sail off into the sunset a crypto-god.
Good luck guys. I hope you weather the next 1-3 years with great savvy.
