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Think The Bitcoin Bubble Is Bursting? Think Again

By Investing.com (Tanzeel Akhtar/Investing.com)CryptocurrencyFeb 07, 2018 04:50AM ET
www.investing.com/analysis/bitcoin-bubble-bursting-not-the-first-time-nor-the-last-200287753
Think The Bitcoin Bubble Is Bursting? Think Again
By Investing.com (Tanzeel Akhtar/Investing.com)   |  Feb 07, 2018 04:50AM ET
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Bitcoin prices plunged as February 2018 began, even breaking below the $6,000 benchmark at one point earlier this week. Many investors watched with horror and wondered if the bubble in cryptos, and Bitcoin in particular—which had a spectacular 2017, gaining more than 900% during the course of the year, hitting an all-time high of $19,783 in mid-December before losing more than 60 % of its value at current prices—was finally over.

BTCUSD 5-H Chart
BTCUSD 5-H Chart

But nosebleed highs and breathtaking lows appear to be a key part of this extremely volatile cryptocurrency's history. Since the first Bitcoins were issued in 2009 the currency has experienced a number of corrections as well as two significant crashes—one in 2011, when it lost 94% of its value over a 5-month period, and in a more prolonged downturn from November 2013 through mid-January 2015 when it fell hard, dropping 85% in total.

Note that many analysts define a 60%-plus plunge as a bursting bubble. By that measure, Bitcoin has weathered two severe burst bubbles during it's brief history, yet each time it's come back stronger.

Big Bitcoin Crashes
Big Bitcoin Crashes

Source: CoinTelegraph

The chart above highlights previous triggers that caused the earlier crashes. What are the drivers of this current crash?

A number of factors appear to be in play. Asian governments have been making more noise about regulating ICOs and cryptocurrency trading for a while now.

Recent announcements from banks and credit card issuers noting they will no longer transact crypto purchases via credit cards have added to concerns pushing the alt-currency down further. JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) have all said they’re halting purchases of Bitcoin and other cryptocurrencies on their credit cards.

More recently Lloyds Banking Group (NYSE:LYG) and Virgin Money (LON:VM) who have also banned card purchases. As the ban expanded, Bitcoin prices contracted.

Feeling #REKT?

Lately, scores of Bitcoin investors have been tweeting #REKT, slang for wrecked, which concisely describes how utterly destroyed or ruined they likely feel. Yet despite the numerous recent setbacks for the largest digital currency by market cap, there are still plenty of reasons for Bitcoin traders to remain steadfast. HODL has been a good strategy during previous crashes, especially since each time, Bitcoin has come back stronger than it had previously been.

Historical Context

To understand the full HODL case for Bitcoin going forward, perspective on the reasons for previous crashes and what triggered them is key. As well, it's important to note how long it took Bitcoin to recover from each event.

There have been two memorable Bitcoin crashes. One in 2011 when it dropped from $32 to $2, and again from 2013-early 2015 when it fell from a high of $1166 to $170 before staring to recover. Both events were triggered, at least at first, by circumstances surrounding trading at the now-defunct Mt. Gox exchange—the first time because of a hack to the exchange, the second time because the exchange's site crashed, halting trading.

Yet each time Bitcoin crashed, the comeback brought additional value for investors. Analyst Charlie Bilello tweeted the following chart on February 5:

Cybersecurity expert turned cryptocurrency expert John McAfee expressed the frustration most longtime investors feel toward the panic of newbie and/or short term investors at the first sign of significant losses, when he tweeted:

Noel Chandler, co-founder and CEO of Clinicoin, an open source wellness platform that rewards users with cryptocurrency for engaging in healthy activities, focuses on the broader history of this particular asset and the promise it provides for future value growth:

Of course, the point would be not just to chronicle the falls, but also to describe what happened next in each case (the currency came back even stronger each time), and to speculate or even forecast if possible about what how low it might continue to go and what—based on history and technical analysis—might be the next step once the bubble phase is over this time. If what we're experiencing right now is another BTC bubble bursting, this is vastly different from the others, simply by the volume of innovations and ideas coming out of it. If we're following the Boom, Bubble, Bust, Rebirth pattern, I believe the rebirth is going to be quick and more exciting than anything we've ever seen before in business.”

Maksim Izmaylov, CEO and co-Founder of Winding Tree , a blockchain-based decentralized open-source travel distribution platform, focuses less on the price action and more on the underlying technology, which he believes is the real source of Bitcoin's value:

The crypto market is fueled by irrationality. The recent price increases have been driven by tons of new users who think that crypto is going to make them rich overnight. This is easily seen by the new users Coinbase and Kraken onboard every day. Price drops don't matter, it might change the perception of crypto among the public but it doesn't stop the development on the underlying technology, and that's what ultimately matters. Price is nothing else than speculation at the moment.”

Staying bullish on crypto

Despite the drop in price, Ted O'Neill, founder of Narrative LTD, a content and social networking platform, is still very bullish on cryptocurrency in general, particularly for the long term. Though the volatility may scare investors, keeping them away from the asset class, he points out that awareness of the coin's trading history and a deeper understanding of what drives an alt-coin's value is paramount:

“Unfortunately, the incredible price gains associated with cryptocurrency are going to be countered by scary downturns, as well. It’s best to think long-term if you hold cryptocurrency and of course to hold crypto that you understand and that has value to you.”

For Chris Tse, founding director of New York City-based blockchain developer Cardstack, it's really all about the technology:

“If nobody is actually using blockchain, then its intrinsic value is the trading value. To put it another way, if we don’t have real activity, with real substance — people building communities on blockchain, using decentralized software in their everyday lives; if we can’t get beyond the current single use case of trading — then volatility will persist because the price only reflects sentiment, and no real underlying value.”

Bitcoin has been experiencing wild volatility for as long as we have credible trading data explains Rob Viglione, co-founder of ZenCash. As he sees it, what we’re experiencing now, a 65% drop in Bitcoin's price from the mid-December peak just below $20,000, is nothing new.

“The worst drawdowns have ranged from about 80% to 95%, so this current crash is well within the historical bounds. The worst drawdown started in June 2011 and finally ran its course with a 93% drop that turned around in mid-November that year. Every crash has been preceded by a massive run up. In 2011 we saw prices skyrocket about 10,000% from the start of the year before they took a nosedive.”

Viglione believes it's important to gain some perspective from the 2013-2015 crash in particular. It started in April with Mt. Gox and saw a total drop of 82% by August of 2015, with plenty of false upturns that ended up fizzling out. He says:

“The 2013 crisis started after a 53,000% increase from the previous low in November 2011. Bear markets in Bitcoin tend to last anywhere from 6-24 months, at least from the sparse trading history we have thus far. The current marketplace is certainly much more mature than it was in both 2011 and 2013, so it is reasonable to think the downturn might be less severe.”

If you're new to cryptocurrency trading and Bitcoin in particular, be warned: it's a high risk and volatile investment.

BTCUSD Monthly 2012-2016
BTCUSD Monthly 2012-2016

But if history is any guide, as the chart above of BTC/USD from 2012-2016 so clearly illustrates, for investors who manage to keep calm and HODL, there can also be high reward.

Think The Bitcoin Bubble Is Bursting? Think Again
 
Think The Bitcoin Bubble Is Bursting? Think Again

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Abou bakar virk Abou bakar virk
Abou bakar virk Abou bakar virk Feb 12, 2018 1:19PM ET
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Thank you for all
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Ahmed Mesbah
Ajax Feb 11, 2018 11:41AM ET
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Calling this a correction makes me laugh. BTC is trading within a sharp downtrend and it might only do some corrections to the upside not the whole way around.
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Feb 10, 2018 2:08AM ET
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How much of your own money is invested in bitcoin, before you tell others that the bubble isn't bursting?
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Ric Tabisola
Ric Tabisola Feb 09, 2018 8:26AM ET
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who writes this bogus articles. seems our of touch with reality. did they ever really look at the 1 month 2 month graph and see that over all downward slope. you can't hide facts. might have wild swings but not worth just holding. only worth day trading high and lows. those hodl-ing will be left hodl-ing the empty bag at the bottom with peanuts.
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Timothy Ettinger
MainStEconomist Feb 08, 2018 7:04AM ET
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This is the point I have maintained as well.. this correction is very much in line with what has happened in the past. In my opinion, HODL a large part of your wealth is not a good idea in an asset with the swings BTC and other crypto has. But hence why I like how you ended the article: "If you're new to cryptocurrency trading and Bitcoin in particular, be warned: it's a high risk and volatile investment." At any rate, you built the bull case quite well. :)
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Feb 08, 2018 12:15AM ET
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Next week btc/usd chance to below near 5,000
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Joe wynter
Joe wynter Feb 07, 2018 7:25PM ET
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Don't buy any crypto anything, you will lose all your investment,  history shows these gimmicks all get looted in the end
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jorge davalos
jorge davalos Feb 07, 2018 2:53PM ET
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Is any serious investor considering Bitcoin a long term asset ?
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Devin Nash
Devin Nash Feb 07, 2018 2:53PM ET
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Serious investor doesn't mean expert.
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0 0
Feb 07, 2018 2:53PM ET
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jorge: i bought some liteoin back when. spent some last december on electronic goods. still have some left. let's say you bought some venezuela bolivars few months ago. you have nothing today. so it's all relative. digital money and printed money go up/down in value daily. by long term i'm guessing you mean more than one year.
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Scott Glover
Scott Glover Feb 07, 2018 2:49PM ET
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Big Banks Cannot and will not allow Bitcoin to succeed, why would they when they can not  control or regulate it!!! They also can and will just make there own "Bitcoin" . Its a great idea but that is all
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Devin Nash
Devin Nash Feb 07, 2018 2:49PM ET
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Can't regulate decentralization
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1 1
Dude One
Dude Feb 07, 2018 2:36PM ET
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Fantastic article!
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2 3
Dude One
Dude Feb 07, 2018 2:30PM ET
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It´s not possibly good investment/trading advice by any standards to suggest HODLding if you bought BTC anywhere near 19,783 and lost over 60% in the trade. Assuming good risk and diversification practices (in Crypto?, FGS), you would hardly hold (or hodl...!) any trade losing over 10%, I mean you´d need to be a pretty good dmn trader (!) holding BTC drop and compensate with other investment/trades to keep risk balanced in your portfolio. Rather than getting stuck in denial mode and preaching HODL and pray some more (noobs definitely don´t need help in terms of holding a losing horse), it would be nice to provide some real advice in case the SHTF scenario continues. Why don´t you cool HODLers google "bubble stages" and take a second look at the graph?, or maybe you´re so COLO that money doesn´t matter anymore, now you HODL to be RIGTH.
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Devin Nash
Devin Nash Feb 07, 2018 2:30PM ET
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100k is bottom to be honest
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0 1
Feb 07, 2018 2:30PM ET
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dude: if bunny lebowski wrote a financial column i'd read it religiously every day. you know, she would assess a thousand dollar membership. ha ha.
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Santiago Sesmero
Santiago Sesmero Feb 07, 2018 1:41PM ET
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Great article
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1 4
Dude One
Dude Feb 07, 2018 1:41PM ET
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LOL... only positive remarks published.. hahahahaha!!!
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Sasha Marusic
Sasha Marusic Feb 07, 2018 1:37PM ET
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Crashing? Lol...Newsflash...we're already down 60-70%. "You think the BTC bubble is bursting?" Why are these articles allowed to be posted here on Investing.com? Sounds like someone at subreddits posting.
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Patrick Valda
PaTT_Philippe Feb 07, 2018 1:37PM ET
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Haters gonna hate. HF missing out on the FUTURE!
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Sasha Marusic
Sasha Marusic Feb 07, 2018 1:37PM ET
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PaTT_PhilippeLol, I am waiting for correct entry into CC-space. NOW is not the time as BTC will be taking another dump down to 4,5-5k. And btw. BTC is done for. There are plenty other good CCs to invest in and sadly to say, BTC ain't one of them. The sooner BTC can die so that rest of the CC-space can decouple from it's price the better. Everything bleeds because of it.
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Ric Tabisola
Ric Tabisola Feb 07, 2018 1:37PM ET
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Exactly, who the he'll writes this be. Out of touch of the real investors.
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Jonathan Filoteo
natz1919 Feb 07, 2018 1:30PM ET
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There are a lot of sell zones above so i dont expect much of btc.. it’s going down
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Al Balma
Al Balma Feb 07, 2018 1:26PM ET
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It's obviously bursting and it's losing momentum. Its a SCAM, nobody should be promoting Bitcoin, perhaps something with solid ground for protection in the trade and price controls. Without support to its value, trade cannot happen for long
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Indie Islands
Indie Islands Feb 07, 2018 1:25PM ET
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Wish I owned some BTC. I have studied Cryptos now for 24 months. Please rewrite article in six months, and again in May 2019. Deal? In the meantime my plebeian machines mine the peasant long shots ... BCN and XMR. Oh, I could be wrong ... See ya in August
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Ric Tabisola
Ric Tabisola Feb 07, 2018 1:25PM ET
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If you owned BTC back then and didn't sell at the peak... I'm sure you would want to jump off a bridge right about now.
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George Chkheidze
George Chkheidze Feb 07, 2018 1:22PM ET
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Cripto is such a bs backed by nothing, just ones and zeroes somewhere in cloud... even dollar is backed by nothing but at least it has history and adoption. Too many different criptos mushrooming daily pose another problem... It’s basically ponzy scheme and surprised you do not see it that way...
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Cooper Candelario
Cooper Candelario Feb 07, 2018 1:22PM ET
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actually- in many different cases, it has been backed by a variety of different global financial influencers, banks and companies...
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Patrick Valda
PaTT_Philippe Feb 07, 2018 1:22PM ET
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You are just a hater spreading FUD.
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1 0
jumali aditya prasetia
jumali aditya prasetia Feb 07, 2018 1:05PM ET
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Spike $10k i will selloff BTC
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0 0
Feb 07, 2018 12:28PM ET
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sophomoric: we know you're hip and down with crypto speak. "hodl" seriously? be like mr tom lee in his column for serious digital users and general readers: if you're on sideline, read zero hedge, and believe in blockchain, you can't discount btc. i own ltc.
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Patrick Valda
PaTT_Philippe Feb 07, 2018 11:01AM ET
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Yeah guys, we are going to the moon again! Everyone get on board this mighty rocket and HODL!!!
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3 2
Stephen Fa
Stephen Fa Feb 07, 2018 7:02AM ET
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Very positive themes coming from Washington DC yesterday. I'm calling a bottom on this cryptocurrency correction.
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