Bitcoin and Bubbles

My middle daughter, Havila loves chewing bubble gum.  She tends to get car sick, and chewing mint gum helps with that.  But she doesn’t just chew the gum, she also loves blowing bubbles.  Bubbles don’t always go well with long hair, but Havi has learned her lesson, and now pops her bubbles before they get too big. 

So what does bubble gum have to do with Bitcoin?  I’m getting asked a lot lately if this is a good time to buy crypto/blockchain/etc, so here are my thoughts on the topic. 

Bitcoin is a bubble, and it certainly looks to me like it’s popped.  Back in April, it peaked out at almost $65,000, and it’s now plunged to $40,000.    

How can you tell if an investment is in a bubble?  I could go on about standard deviations and other math terms.  But, to keep it simple, if something is going up at more than a 45 degree angle, it’s probably a bubble. 

Unfortunately for crypto investors, the worst is yet to come.  Just like bubble gum, the bigger the bubble gets, the more unstable it is.  When it finally pops (and ALL Bubbles do) it really gets messy.

Here’s a chart of the Nasdaq bubble in the early 2000’s.  I started voraciously following the investment markets at age 12, and I remember in the late 90’s watching this bubble expand and wondering when it would pop.  The Nasdaq was at 1,200 in March 1997.  By March 2000, when it finally popped, it was over 5,000. Three years later, it had dive bombed back to 1,200 again.      

That’s unfortunately how all bubbles end.  The gains made once the asset goes parabolic evaporate.[i]       

I’d expect when the bubble in Bitcoin is done, it will be under $13,000. 

It’s also important to point out that while the Nasdaq obviously survived, many internet stocks did not.  I expect many cryptocurrencies will not make it either.

When no one is talking about crypto, and no one wants to think about investing in it…Bitcoin will bottom.  Then, it will begin the long trudge back to $65,000.  Assuming it survives.