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Bitcoin bubbles and Bitcoin crashes is there a happy ending?
Bitcoin bubbleBitcoin crashis now a good time to buy Bitcoin
Analysis of Bitcoin bubbles and Bitcoin Crashes (is there a happy ending?)
Today we are looking into Bitcoin bubbles and Bitcoin crashes. We use our engineering skills and analysis to answer questions about Bitcoin. Questions like will Bitcoin crash?, will Bitcoin prices recover?, and look at will Bitcoin crashagain?. You might just be very happy with the answers!
We look at and analyse some excellent Bitcoin charts to compare the Bitcoin crash 2018 with the Bitcoin crash of 2013. We also show use an engineering trick that almost anyone can use to help see at any time if there is a bubble! This alone could save you so much money! Is a happy ending possible? Read on to find out!
Because Bitcoin has become a hot subject among speculators, it is time we look at Bitcoin investment (or ideally you should read trading wherever I write that) and most importantly, answer the question is now a good time to buy Bitcoin?
EngineerInvestor is not a financial planner or advisor or anything other than an engineer. I dont offer financial advice okay? If you want to get advice, go see a professional. In a way that is a good thing, that I am not a financial adviser, because it is possible my information (and my thinking) will be different.
Bitcoin is without a doubt the most famous type of digital currency. Digital currency uses encryption techniques to regulate the generation of units of currency and to authenticate the transfer of funds, operating independently of the central bank of any one country. Unlike government-backed currency, crypto currencies have no governmental control.
Bitcoin investment typically involves buying with the intent to sell at a higher price later and preferably soon after. So any time you are looking to buy, you want the price to go up, not down. When the price goes up a lot, people rush in to buy more.
However when there has been substantial gains leading up to now, you are left wondering is there a bubble and the following question.
Yes! A resounding yes! is the answer. (Sorry.) How can the be so sure? Because a crash has happened before and is happening as we speak ahem as this article is written. As there is no governmental control, there is a greater possibility for a crash. This is because the central bank of most countries try to maintain their currency within a range they consider suitable or desirable.
However, to answer this question specifically, the m will look at some Bitcoin charts.
The EngineerInvestor.com has identified two very similar time periods to compare.
The first is the Bitcoin crash 2018. Look at the chart below. It covers the date range to February 2018, starting from April 2013.
Study the chart and if you are observant you will see that the Bitcoin price is low for almost the entire chart. Around 90% of the time you could say it looks low in the overall chart view.
Then in the last 10% of the chart, you can see the whopping jump in price. The Bitcoin price increase breaks out of the long term trend and sky rockets well above a This is what we describe as a price bubble, and specifically in this case a Bitcoin bubble.
The evidence you need to confirm it is a bubble, is that the Bitcoin bubble burst in the last 3% of the chart. Look at the last month or so. On December 17 the Bitcoin price bubble reached a US dollar high value of 19,962 (visible when you zoom in, close to that position shown in the trend above, which is over all data, a longer period).
Then the bubble burst from that December 2017 high down to a low value of 6,135.56 US dollars on February 6 2018. Whether you call it a Bitcoin bubble 2017 or 2018, it is clear that indeed there was a bubble, and yes of course as with all bubbles, eventually it burst.
Lets have a look at that on a shorter time scale, say for just the last 12 months or so.
In closer detail in the above chart, we see a gradual price rise at first. The rise in price accelerates, as the bubble builds. Then the bubble bursts and the price comes back down to where it was in November.
Only two months later, but a huge drop of 69%. Incredible. Incredibly painful if you bought mid December!
Wait a minute, didnt I say I was going to compare it with the Bitcoin bubble of 2013? I sure did and it is worthwhile due to the similarities.
It could almost be the same chart if it wasnt for the date range displayed at the bottom of the chart. Here it is.
Now scroll up and down while you compare the two charts. If not for the time scale being more stretched out (or compressed, depending on how you compare) the two charts are remarkably similar!
So you wanted some more insights into the Bitcoin bubble, but were afraid to ask?! How will it affect me and my bitcoin investment? Well its your lucky day!
We will take a different look at the price bubble from most. Stay with me, itll be fun! Er and if not fun, most certainly educational and very, very useful if you want to see some extra tools to spot a price bubble of anything.
Im certain this will help you make money and avoid losses with this knowledge! Those are the important things.
Consider the two charts below. Perhaps at first glance they look pretty similar.
The first chart is an exponential increase. Each unit of time the price goes up 5% in Case 1.
This would be how a simple compounding interest chart would look like, for a compounding return of only 5%.
Most investors would appreciate this is the sort of trend you expect (or hope) to see when looking at a constantly growing investment. Notice I did remove the vertical axis for now.
The second chart, Case 2, is only slightly difference in appearance. It includes a bubble almost concealed within its numbers (ah beautiful numbers).
The secret is Case 2 is not an exponential curve. At least not for the whole of the chart. However if it is the only data you have, probably 90 out of 100 people would say it is an exponential curve. (Please dont forget that 70% of statistics people tell you are made up on the spot.)
Alright, so there is a bubble suggested, but you want to knowhow can you see it.
This will help you spot price charts that deviate beyond their long term historical growth trend. Helps see if something has changed. Without underlying changes to the investment, it could indicate a bubble, and save you a lot of money!
Heres the Engineering trick plot the charts on a logarithmic scale.
Engineers have long-time known that logarithmic scales are great for straightening exponential curves. If you want to know why, I dont have the time or space here (and I dont want to lose most of my readers!) suggest you go look for the MathInvestor! Ha-ha! Ahem, anyhow on with the show.
So lets see those two charts again on a logarithmic scale.
Case 1 again with a logarithmic scale. I kid you not! This is exactly the same data, only the y-axis scale is changed.
But that is boring! Its just a straight line. Yes, and that is why it might be handy way to look at your data.
Case 2 is a little more interesting, so hang in there!
Case 2 moves away from the straight line trend towards the right (extended in red). It is a clear signal that there is something going on other than an exponential trend!
So there you have it, one is a straight line, and the other deviates above the line. The more the price goes above the straight line, the more a price bubble might be happening. If you see this in future be wary! It is one signal a bubble is building.
Lets look at the Bitcoin bubble and Bitcoin crash using this engineering tool. Here is the Bitcoin price chart only this time with a logarithmic scale. You can clearly see the deviation above the longer term trend.
Okay, so lets say now we have a bubble. What then?
On all markets there is day to day variation. Some markets have second to second variations. Prices represent what the people coming to those markets want. Does demand outstrip supply that day, or are there more sells than buys. Its a classic supply-demand balance. So yes any day may come where the price goes down. Some times it will be a little, sometimes it will be more.
The bubble is burst when people see that the price is falling, and start to realise what we are saying is true, that there is a bubble. People who have bought at a lower price decide they had better take some profits, so they sell Bitcoin.
People who paid more than the current price will act more violently than that. They panic because they think they will lose all their money and they sell Bitcoin urgently! No matter the price, they dont want to be left holding the baby!
Before too long, everyone is concerned and the price is falling sharply. In the case of Bitcoin, there is no government to step in to stabilise things.
Is Bitcoin finished and what can I make of the fact that Bitcoin crashed?
No, probably we cannot say Bitcoin is finished. To consider in more detail, and the EngineerInvestors reasoning, we have to consider if there will be a Bitcoin price recovery.
Probably. I cannot yet say yes definitely. (However please note it is difficult to get an engineer to ever say definitely about anything!)
The question of will Bitcoin recover is a tricky one. However there are still some financial drivers behind the cryptocurrency that havent died with the Bitcoin price crash. These will most likely eventually drive the price again. How fast this will happen I cant predict.
Review the first two charts above to see there has been a Bitcoin price recovery the last few days. Just a little. It might be a bounce on the way further down! It suggest prices have fallen enough for people to think prices are reasonable again. Some people are already buying back in.
First of all, let me reiterate that the EngineerInvestor is not a financial planner or advisor or anything other than an engineer. I dont offer financial advice okay? If you want to get advice, go see a professional. What the offers is information. We like to think this sort of information is not what you get from a financial planner, so dont take it as such, please!
We make no guarantees about whether that information is useful for your individual situation we cant because we dont know your situation. Well the EngineerInvestor believes if you are a trader, a professional trader only, then yes it may well be a great buying opportunity. One sometimes say things like it is as good a time as any. But that isnt literally true for buying Bitcoin at the time of writing. Prices are down significantly from 2 months ago, so it is better than buying any time in the last
It may well be now is a good time to buy Bitcoin, for sure.
However for most people Id say proceed with caution or dont proceed at all if you think trading currencies, crypto currencies or government backed ones, is investing. At the EngineerInvestor we know there is a very big difference between trading and investing. But that is such a big topic in itself that another article!
It is important to this discussion to stress a potential link to the tulip bubble here. Again, that is another article.
Interestingly the Bitcoin bubble coincides with when the EngineerInvestor started hearing about Bitcoin investing from people who dont otherwise talk much (or dare I say know much) about investing.
It has happened so often that this is another key indicator that a bubble is happening and it is time to get out when you hear the average person speaking about it, and especially when they start encouraging you to get in.
So if people can ever get over enthused about anything, there is a good chance of a bubble forming. Normally it takes a cycle long enough for people to have forgotten the past. History and the charts now show that in the case of Bitcoin bubbles, that is about 5 years. Remember that the previous bubble used for comparison was the Bitcoin bubble in November-December of 2013. Now that weve had two major Bitcoin crashes, the EngineerInvestor can say they happen with a period of 5 years, give or take. No doubt there will be some variation.
The EngineerInvestor believes in any market there cannot really be a totally efficient market so there is always the potential for a bubble. If the Bitcoin price recovery that we can just see start to happen continues, then yes it is possible a bubble will form again.
Some charts in this article (the better ones some might say) are from Coin market cap, a brilliant website that presents the capitalizations of Cryptocurrency markets.Check them out here. All analysis is by the m.
Was there a Bitcoin bubble? Yes. Was there a Bitcoin crash? Yes. It has happened before and if the Bitcoin price recovery continues, and then escalates, it could happen that Bitcoin crashes again in future.
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Bitcoin bubbles and Bitcoin crashes is there a happy ending?
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