Bitcoin’s Downside: Know The Risk Before You Plunge In

On Tuesday, I showed you how the bitcoin bubble looks a lot like the internet bubble that inflated in the final phase – the orgasm – of the great tech bubble of December 1994 into March 2000. It crashed faster and harder than the Nasdaq bubble – down 93% compared to 78%. It was also a leading indicator for the Nasdaq crash as it only retested its January high rather than exceeding it.

The internet bubble went up 7.5 times in just 16 months. At close to $20,000, Bitcoin has gone up 14.8 times in just eight months.

That’s twice as high in half the time!

It’s now the steepest and most extreme bubble of all time. Literally. It’s even surpassed the infamous tulip bubble of the 1630s, which is similar to the Bitcoin bubble because it too had little against which to measure any real value.

At least we could calculate the price-to-earnings ratio on the Nasdaq or AOL. But there’s no measure of valuation on these digital coins. So, like tulips, its price is only a function of what people are willing to pay.

It’s not all totally speculative though. There are two tools we can use to try to get some handle on this extreme bubble.

The most important calculation for estimating the downside of a bubble, even before it peaks, is the bubble origin. But that’s not the last major low. Instead, it’s the point at which the market starts to diverge from the fundamental trends.

Look at the bitcoin chart…

The bubble origin for Bitcoin was at $1,355 on April 24, 2017.

That means that, from the most recent high of $19,395 (at least at time of writing), this bubble could shed 93% to return to that point of origin, which is what bubbles typically do when they burst.

That’s a massacre!

As an aside, Ethereum’s bubble origin was at $51. It has had similar gains to Bitcoin, reaching 14.4 times gain at its recent highs. A crash from $733 would represent the same 93% downside.