bitcoin price crash bubble
The bitcoin price crashed more than $2,000 on Wednesday, and frantic investors caused leading crypto exchange Coinbase to go offline. | Source: Shutterstock

Results from the past do not offer guarantees for the future. It’s the legal disclaimer that comes with every new financial brokerage account and trading promotion. And for good reason. Because results from the past, do not offer a guarantee for the future. Then again, history tends to repeat itself. Let’s take a look at the two most recent Bitcoin bubbles:

1. Bitcoin to USD chart - Jan 2013 to Oct 2013
Bitcoin to USD – Jan 2013 to Oct 2013
Bitcoin to USD chart - Aug 2013 to Jul 2014
Bitcoin to USD – Aug 2013 to Jul 2014

 

 

 

 

If you superimpose them over each other, a clear pattern emerges:

Bitcoin to USD chart - April 2013 and December 2013 bubbles superimposed
Bitcoin to USD chart – April 2013 and December 2013 bubbles superimposed.

The similarity goes a long way.

The solid line shows the April 2013 bubble, and the transparent line the most recent December 2013 bubble. The x-axis and y-axis are those of April 2013.

Only in April and May 2013 the lines diverge, because the April 2013 drop was so much steeper than the December 2013 drop.

The reasons for the bubbles are varied though, and they played out at different price levels. In April 2013 the price jumped from $30 to $270 (a 9x increase) and in the December bubble from $140 to $1140 dollar (also 9x increase).

A metaphor for the price is that of a skippyball. When one throws a skippyball high in the air, the first bounce is big, then lower, and lower, until it is flat on the ground, ready for a new throw upward. As we now know, that next throw came in November and December 2013:

Bitcoin to USD chart - Long term chart
Bitcoin to USD chart – Long term chart

If the 2013 is a good prediction for this year, we are up for some slowly downward (relatively flat) months as the Bitcoin price prepares for the next rise. That rise could reach another 9x increase, leading to $5076. Not quite $10,000 but still worthy.

However:

1. The size of the Bitcoin bubbles are decreasing.

The bubble in 2010 went from 0.01 to $1 (x100), and from $1 to $30 (x30). In 2011, nothing interesting happened, then in 2012 and 2013 the last two bubbles happened where we saw a 9x price increase. This blogpost has an interesting explanation for the lower bubble size. “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”.

2. We need a reason for a new bubble.

A smart commenter reacted on my 10,000 USD price prediction: Wait, so there will be another Mt. Gox with fake trading accounts pushing the Bitcoin price up 10 fold?. The Mt Gox trading bots are assumed to be cause of the last bubble. We don’t know what will create the next bubble. It might be a wave of new users. Global user interest in Bitcoin is still going towards a new low, as shown by Google trends. A new rise in user interest is likely in the make.

Google trends on Bitcoin
Google trends on Bitcoin

If you wonder if that Google trends chart matches up with the Bitcoin price chart, here is the answer:

Bitcoin price vs Google trends
Bitcoin price vs Google trends

In 2013 the user interest and Bitcoin price clearly match up. It’s not clear which comes first, but they clearly show a correlation. At A and B the lines are in check. Then at C, the user interest drops while the price experiences a normal rebound. Then the price drops too. Since May 2014 (D) we see the user interest further slowing down, while the price has started to rise again. I can’t wait to see what happens with the next wave of user interest!

3. Results from the past do not offer guarantees for the future.