This One Little Bitcoin Price Rule Drives Banks Crazy

Ahhh, everyone loves a little click-bait on Monday afternoons, am I right? But unlike every other bit of click-bait you might see that follows the syntactic rules of the headline to this article – this one is a real rule. What is it? Let’s start off by answering that.

The rule is about Bitcoin price following a bubble. Bitcoin has repeatedly bubbled up, and after having done so, crashed in quite dramatic fashion. It happens every time, and while the crashes have become less dramatic over time, they are still quite likely to continue. So, then, the rule.

“The peak of the bubble preceding the one that most recently occurred represents a bottom barrier past which the price will not go during the correction from the most recent bubble.”

Now let’s examine the reality, beginning way back when, in 2010. We’re using Mt. Gox prices. I know – crazy stuff.

The first and only time this rule has ever been broken happened way back then, in September and October of 2010. The price peaked at $0.175 for a brief, brief moment before settling for the week at $0.0627. After that, the first “bubble” happened – some whale crashed the price all the way down to $0.01, but then bubbled it all the way up to $0.50. The crash from the bubble up to $0.50 brought the price as low as $0.14; breaking the rule for the first and only time. In fairness, this was after only three or so months of trading. It’s also worth mentioning that the $0.175 price point was an extreme anomaly – perhaps fat fingers. For our purposes, the first bubble is really the peak of $0.50 during the first week of November, 2010.

In the weeks that followed, there was little action until January, when the next bubble began. The price had been hovering between about $0.18 and $0.25, but suddenly it began to take on a rise. It crept up slowly at first – $0.30, $0.32, $0.35, $0.37, $0.40, $0.45 – and then, as it always does, exploded. From $0.45 to $0.95 – and back down to $0.65. From $0.65 to $0.95 again. It was clear that the price was hitting hard against something – a psychological barrier. The $1 price point. What’s so important about that value?

It’s when everything becomes real. You know what isn’t real?

Pennies.

Nickels.

Dimes.

Quarters.

Half-dollars, even.

But dollar bills? Sacagawea’s? Susan B. Anthony’s? Those are all real. They’re not pocket change. The push up against the invisible wall that was $1 was Bitcoin’s fight to become real – to not be treated like pocket change – to be thought of as something more.

And it pushed through the wall in the first week of February – peaking at $1.10. That’s when people thought to themselves: “Enough! I know this isn’t real, this is an illusion of value. I’ll sell it all while it’s still worth this much!”And when the crowd all says that to themselves… well, it becomes the truth. And so it must be; for so it is written. The low for this bubble came in the first week of April, 2011: $0.5619. A full 12% over the previous peak of $0.50. And such was the first instance of the rule.

But this time Bitcoin was very quick to rebound. And the first “great” bubble occurred. The bubble up from ~$0.15 to $1.10 represented a massive 700-some percent increase. This one was even bigger. From the post-pop low of $0.5619, Bitcoin jumped massive leaps and bounds all the way up to $31.91 in June – a grown of over 6000% in just 2 months. The next low? $1.994 in November of 2011. The last dip brought us to 12% over the previous peak. This one? 80% over.

From there history began to repeat. The price began to rise slowly at first, but then sped, and ascended dramatically. The next peak? $266. This peak is what we would now call the previous peak. From here, to jump us forward in time, we fell to a low of $50.01 – a curious number. Perhaps psychological in nature, one might surmise. $50.01, by the way, is 56% past the previous peak of $31.91.

And again, history repeats – with the next bubble being the biggest yet; the $1242 bubble that was popped by China and then again by Mt. Gox’s demise. The low?

That is as yet unwritten. We haven’t seen another “high” yet, so we can’t know.

But the lowest we’ve seen so far? That went into the books over the weekend.

$275. A scant $9 over the previous peak of $266. Will this be the year the rule is broken – not merely bent?

I doubt it – but you’re welcome to place your own bets. My money is, as always, on history.