A Look At Bitcoin Bubbles, When Will the Next One Be?
The First Spike
The first bitcoin price spike occurred on July 12, 2010, on the first bitcoin exchange, “The Bitcoin Market” after an article about Bitcoin Version 0.3 appeared the day before on a popular news site, Slashdot.
With a flood of new bitcoin users, the exchange’s bitcoin price jumped tenfold, from $0.008/BTC to $0.080/BTC over the five days period. Following the spike, MtGox launched where the price quickly settled to $0.06/BTC.
“The Great Bubble of 2011”
On MtGox, bitcoin’s price peaked on June 8, 2011, to a new high of $31.91, widly believed to be due to the Silk Road marketplace gaining popularity. However, it quickly dropped off and began a slow decline, decreasing in value by over 93% over the next four months.
April 2013 Bubble
Prior to the April bubble, the US Financial Crimes Enforcement Network (FinCEN) issued guidance on digital currencies on March 18, 2013. The following day, a new version of bitcoin, Bitcoin Version 0.8 was released and soon the Internet Archive started accepting bitcoin. This drove the price of bitcoin above $30 and took bitcoin market cap to a new high of $1 billion.
All the good news fueled a price spike which occurred on April 10, 2013, amid the backdrop of the Cyprus haircut protests. The price continued to climb, surpassing $100 for the first time. However, the new high of $266 on MtGox soon crashed to under $60 before slowly returning to the $120+ range.
November 2013 Bubble
After many months of Mark Karpeles running a pair of trading bots called Willy and Marcus who faked volume at MtGox, speculation grew rampant. Bitcoin’s price skyrocketed to the all-time high of $1,242 on November 28, 2013. However, users soon discovered that could not withdraw their money while the price on MtGox dwindled down to $0 throughout February 2014.
However, unlike the previous bubbles, there were three other major USD exchanges this time around. Prices at Bitstamp, Bitfinex and BTC-e, where people could make withdrawals, took a big hit but never fell to their previous lows. At Bitstamp, the peak was lower than MtGox, at $1,163, which did not fall below $400.
When is the Next Bubble?
Among many speculations was one by Mike Casey Sr. BI Developer at General Motors who recently wrote a blog post analyzing bitcoin bubbles. While speculative in nature, he provided compelling and detailed arguments, comparing bitcoin price charts to the Gartner Hype Cycle, the S-curve, and Fractal mathematics.
He claims that bitcoin bubbles largely follow the hype cycle “because the nature of bitcoin investment is almost entirely speculative. Speculation is driven, in large measure, by hype.”
Like a fractal, the chart between the April 2013 spike and the November 2013 spike mirrors the chart between the November 2013 spike to the present, on a smaller scale. Casey hypothesized that the upcoming spike will take a similar form.
He also noted that we are currently in a phase where the price gradually makes its way back up to the old high price. “Once the price reaches a sustained level of 80–90% the old peak, the bubble cycle typically starts over again with another bull run,” he wrote. After much analysis, he said “I anticipate we have one more plateau,” which is “likely around $900.” Finally, he speculated that:
At present, all technical indications are that we are several months away from a new hype cycle and bull run.”
When do you think the next bubble will be? Let us know in the comments section below.
Images courtesy of Bitcoincharts, Mike Casey, MtGox, Marshall Commercial Funding Blog