Has the Bitcoin Value bubble burst? Looking at the most recent prices, we seem readier for a gentle nosedive than a new rollercoaster ride to the top. Many altcoins are heading down too: Litecoin, Peercoin and your beloved Dogecoin are all in a steady slide to the drain of the cryptocurrency world. But looking at the charts below, many would argue that Bitcoin is up for a new rise to 10,000 USD. This recent bubble wasn’t the first bubble, and it won’t be the last for Bitcoin.
You see that tiny top in April 2013? That was a bubble just like the most recent big one. It was playing out on a lower price level, but the percentage rise was equally big. There have been more bubbles in markets ever since markets were invented. All start with a slow rise in price, then a parabolic jump to the top, and the inevitable crash and rebound. At the end of every bitcoin bubble, the value is about 2x higher than what it was. Every time.
To see this trend in action, we have to display the price on a logarithmic scale. This is useful for values that grow exponentially. The chart below shows us the Bitcoin/USD value over the same 2013-2104 period on a logarithmic scale.
I stress that this is the very same chart, but on a different scale. One can see exponential growth, more or less stable over the years. In 2012 the price grew from $5 to $13. In 2013 from $13 to $800. If we make a similar jump in 2014, we come to the (crazy) price of 10,000 per bitcoin. For this the Bitcoin value only has to continue its trend. Following the full 2012-2014 chart, one can see continious valleys followed by spikes. We are currently in a valley, which is very good news. What will be the value in 2015? The chart below takes an educated guess:
Google Trends on Bitcoin
The fact that we are in a valley is confirmed by Google. Google trends shows us how popular a keyword is. It tracks the number of searches for ‘Bitcoin’ and other keywords, and displays that in a graph over time. The resulting chart of user interest shows peaks and valleys corresponding in time with the peaks of the price, as can be seen in the excellent research in this forum post.
Does this mean more user interest increases the price? Or does a higher price generate more user interest? We can’t be sure, but it is clear that they go well together. We are currently in a valley of user interest, which means another top is in the make. Bitcoin news is widespread, but how many people do you know that own one? According to wallet counts, the number of current Bitcoin users has hardly reached more than one million yet. Bitcoin is at it’s very infancy.
“Bitcoin is still in the earliest phases of industry development. The first years of Bitcoin were about building the infrastructure. Bitcoin entrepreneurs were busy setting up the most basic but fundamental aspects, including wallet and mining services. Today, Bitcoin is just starting to enter the investment phase, where venture capitalist, hedge funds and other financial firms are starting to invest money and capital into this nascent technology. Bitcoin isn’t quite ready for the consumer phase, where end users begin to utilize the services. If the entire history of Bitcoin was a clock, we’re still in the very early time. I would say were maybe in the second second of the entire history.” Nicholas Cary, CEO of Blockchain.info (source)
The next jump in price could be ignited by the Winklevoss brothers bringing Bitcoin to the Nasdaq, or by the SecondMarket Bitcoin Investment Trust handing over Wall Street dollars. But wherever it comes from, the charts are definitely bullish. My advice is simple. Buy now, and wait.
Disclaimer: The funny definition of an economist is “Someone who can use economic theory today to explain why he got all his predictions wrong yesterday“. The market is unpredictable and I can’t always be right.
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