Bitcoin Mania Bubble Bursts, China Triggers Price Crash Start, Technical ForecastCurrencies / Bitcoin Dec 05, 2013 - 12:03 PM GMT
The bitcoin bubble appears to have burst as a stepped series of price crashes are underway with the price currently standing at 1074 down form 1240 barely a day earlier. A clue to its future direction can be discerned from the unfolding technical price patterns, that just as I wrote wrote in the run up to the peak of the Bitcoin bubble with the price converging on USD 1250 that the market was primed to crash and all it was waiting for was any even marginally negative news to act as trigger for increasing waves of market panics as GREED amongst the bitcoin mania hoarders turns into fear of loss of paper profits.
The signs of what to follow were clear as just as the bitcoin price was bid up into a bubble frenzy, so was the mainstream media's coverage which in the UK culminated with the story of the bitcoin miner having lost a hoard that was valued at more than £5million when he dumped an old hard drive in the bin as I wrote at the time and warned of bitcoins being nothing more than a ponzi scheme where my highly timely advise was for bitcoin holders to get out IMMMEDIATLY!
Bitcoins the Real Tulip Mania Bubble Ponzi Scheme
Whilst many mistakenly focus on UK housing market as being in a bubble a real tulip mania-esk bubble primed to burst is taking place in bitcoins, as the price continues to explode into the stratosphere that the mainstream media illustrated by way of the human story of how one bitcoin miner threw away his hard drive that reportedly contained 7,500 bitcoins that at today's market price would be worth over £5 million.
The bitcoin miner, James Howells was shown at the rubbish tip where his hard drive lies buried under tens of metres of compacted refuse leaving James to ponder that even if he could find the hard drive, would it have survived several months under a wet rotting mountain of waste.
Off course the reason why he did not pay that much attention to the fortune that resided on his dumped hard drive was because when he threw it away the value was far, far less than 1/20th of today's price, with little media attention at the time to remind him of its potential value which has seen the Bitcoin USD price rise from about $14 at the start of the year to more than $1200 today.
Though throwing away £200k valuation of a couple of months ago was still a pretty dumb thing to do, which reflects the truth of the Bitcoin tulip mania as James had mined his bitcoins (solving blocks, the complexity and processing power needed is constantly increasing in response to increasing supply) several years earlier using his personal computer, and that all they were actually worth at the time was marginally more than the cost of the electricity expended, so no more than perhaps £50 rather than today's £5 million valuation.
So take this as a warning to all those who have been piling into the Bitcoin tulip mania (mostly gullible chinese investors trying to hide their wealth from their corrupt chinese communist party controlled government ) need to realise that the real value of bitcoins is near 1/100,000 of the current price and therefore the potential losses they WILL suffer when this i-bubble bursts will far exceed a 99% loss! AND IT WILL BURST as soon as any of the bitcoin hoarders who mined vast stock piles during the early years try to offload their holdings, an event which is probably imminent if not already underway as you read this article.
As was the case for the original Tulip Mania, following the bursting of the bubble Bitcoins will soon be forgotten and so will the craze for all peer to peer i-currencies, as the bottom line is that bitcoins never matched the hype for transactions are NOT anonymous and it IS heavily manipulated by a handful of mining pools so is not decentralised as today ordinary people cannot muster the processing power required to mine for bitcoins.
The bottom line is that bitcoins are a pyramid ponzi scheme where those who got in early win, whilst everyone else loses. If you own bitcoins then you should get out IMMEDIATELY!
China Triggering Event - The Emperor Has No Clothes!
Today (this morning) the bitcoin mania got its triggering event which was the announcement that China was banning financial institutions from transacting in bitcoins stating that the digital currency does not have any real meaning and lacks legal protections just after China Telecom and Baidu had announced that they would start accepting bitcoins as payments.
This prompted the chinese bitcoin price crash by near 30% before recovering to stand 13% down.
This time China may be right, the unregulated bitcoins market is wide open to a whole plethora of crimes not just the traditional activities such as enabling purchase of illegal drugs and goods, or the scams, fraud's and theft such as hacking of bitcoin holdings / transactions and fake investment firms that vanish with your bitcoin investments, but also the whole ethos of mining behind bitcoins supply encourages malware and virus crime such as the use of botnets that steal the processing power of hundreds of thousands of infected computers to mine for bitcoins.
What's Next for Bitcoins
A quick technical review of the charts implies that a double top pattern is being formed which is a warning that the bounce from the neckline is not something that bitcoin holders should put much hope into for the price is likely to reverse within days to break the neckline and retrace all the way down to at least 500 (current 1074), which is more than a 50% drop of the last price and a 60% drop from the high.
Longer term my view remains that bitcoins could lose as much as 99% of their value, so following a 60% crash, don't be seduced into the buying opportunity sales pitch that you will hear much about, no matter how hard the price bounces following the crash it will as the bitcoin longer term history illustrates just mark the initial phase of a prolonged price collapse towards 1/99th of its trading high or about 15, at which point even I would consider a speculative buy.
Charts courtesy of http://bitcoincharts.com
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Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of four ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series.that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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