A couple of days ago, I stumbled onto a video of Roger Ver talking about the crypto market crash that happened on June 2011, where Bitcoin (BTC) prices went from $1.00/BTC to $32.00/BTC, and subsequently crashed to $2.00/BTC by November 2011. For those who do not know who Roger Ver is, he is one of the early investors of Bitcoin. Dubbed “Bitcoin Jesus,” who converted thousands (and perhaps millions) of people into Bitcoin adoption, he was a staunch proponent of Bitcoin back in the earlier days. However, due to a difference in opinion with the current software developers of Bitcoin, Mr. Ver decided to break ties with Bitcoin and created his own cryptocurrency, Bitcoin Cash (or “bcash” for short).
In this video, Roger Ver explains how he was buying large amounts of Bitcoin during the crash from late June 2011 to the Fall of 2011. He purports that he was buying large chunks of the cryptocurrency with every large drop that occurred during those few months. His only regret was that he ran out of fiat currency and could not acquire more coins at lower prices, when BTC bottomed out at $2.00/BTC. Of course, the rest is history. Bitcoin went through a couple of more ups-and-downs only to reach an all-time-high of $20,000 per coin on December 2017.
Today, we see the same thing happening back in 2011. We saw a big run up with Bitcoin prices during 2017, only to see it collapse to current levels, which is currently a 68% drop from the all-time-high. So, what’s attributing to this drop, one may ask. Is this due to market manipulation? Are retail speculators/investors being duped? Uncertainty behind crypto regulation? Exchange hacks? The lack of custody solutions for institutional investors? Perhaps. All those reasons are concerns and valid reasons for why crypto is currently enduring a bear market. However, what many people do not really talk about is how we are going through the cycle of a market bubble. This is perhaps the main reason why crypto prices are collapsing and will, most likely, continue to collapse in the near future.
If we look below, we will see a diagram representing “the cycle of market emotions”.
As we can clearly see, 2017 marked the period when the market was filled with Optimism and Euphoria. The beginning of 2018 was perhaps where we reached the “Point of maximum financial risk,” when the crypto markets hit a record high market capitalization of over $830 billion. Afterwards, we can see the Anxiety and Denial stages kick in. In my opinion, we are either in, or approaching, the “Fear” stage now. So, we still have room to fall.
The main gravity behind the current market downturn is due to the waning enthusiasm in the crypto space. The amount of Google Searches for “Bitcoin” and “Cryptocurrencies” dropped about 75% from its peak, at the end of December 2017. The amount of new subscribers and engagement with crypto YouTube videos and other channels of social media also fell precipitously within the same time frame. In fact, we have many crypto influencers, such as some of my favorites, like Richard Heart and Carter Thomas, who produced and shared content regarding the crypto space, on a very frequent basis, decrease their content production and are moving onto other things. People who were excited and got into cryptocurrencies at the end of 2017, are all pretty much out of the market now. Chances are that they will never return into the space because they lost a lot of money and will not want to go through the same ordeal in the future. But that’s OK because less than 1% of the world is (or was) in crypto. There are still lots and lots of people who are waiting to catch the next big wave in this market.
If we look at the chart below, we can easily discern the pattern of what Bitcoin did back in 2014, as compared to what’s happening right now.
The patterns are not identical, but they follow an eerily similar pattern. Should this be of any surprise to us? Probably not, because we know that this pattern follows what typically happens in the cycle of market bubbles.
Let’s take a look at the similarities between a more traditional market, which we all know, the NASDAQ, and compare it to what’s happening with the cryptocurrency markets, today.
As we can see, very similar chart patterns, which resemble the typical market bubble burst that occurs after a huge run up. We should not be surprised.
Many people who are heavily invested in the crypto space (aka: bag holders) will argue that the 2013/2014 crypto markets were very different from what we have today. After all, we do have more exchanges and a much more robust financial infrastructure for cryptocurrencies today, as compared to three to four years ago. Additionally, more people are involved in the space, ranging from new investors, speculators, software developers, etc. This is all very true and very positive for crypto, however what these bag holders fail to recognize is that the price action is dictated by sentiment, not infrastructure. Cryptocurrencies can have the best financial infrastructure in the world, where investors can simply buy crypto instantly with a single click of a button, but this does not guarantee that they will purchase these crypto assets. Just remember that supply does not equal demand. When there is little demand, prices will not go up.
Bag holders will also argue the variances between traditional markets (i.e. – the NASDAQ, stocks) vs. the crypto markets, due to the different stakeholders involved, and the disparities in financial infrastructure of the two asset classes, are great. While they may be correct in the technicalities with their assessments, again they fail to realize that market bubbles are driven by emotions and sentiment, rather than technical details.
While none of us can tell the future, chances are that history will repeat itself. Bitcoin has gone through three major market bubble cycles since its inception in 2009. The very first major cycle occurred in 2011, the second one happened during 2013, and then we had our most recent one in 2017. So, when’s the next bull-run going to happen? Nobody really knows, but if we had to bet on the next date (or year) when this may happen, it will probably be in the year 2020/2021.
You might be asking why 2021? Well, in Bitcoin, there is this event called “the Halvening” or “Halving”, whereby miners receive half the amount of Bitcoin reward for each successfully mined coin. This event occurs every four years ever since Bitcoin was created. So, the first reward was 50 Bitcoins for every 10 minutes, from 2009 – 2012. The first halving occurred on November 2012, in which the rewards dropped to 25 BTC for every 10 minutes. The second, and our most recent, halving occurred on July 2016, where the rewards dropped to 12.5 BTC per every 10 minute interval. If we are really observant, we will see that there was always a bull-run that happened the year after a halving. Why this is?…Is anyone’s guess.
On top of the upcoming halvening, we can only surmise that in three to four years, we will have more real, actual, and physical/serviceable products in the world’s marketplace. As software developers continue to build new crypto products to solve real world problems, there is zero doubt that the growth and adoption of blockchain technology and cryptocurrencies will continue. The technology will improve, while scalability will continue to reach new heights. As the tech evolves, businesses and software engineers will find newer and better use cases for cryptocurrencies. All this advancement will be expedited as more and more talent migrate from traditional technology and financial companies to cryptocurrency related organizations, which is a growing trend we are beginning to see today.
If the next bull-run is not until a few years from now, what should we do now? For the meantime, it is best to educate yourself about blockchain technology and cryptocurrencies. Learn the truth, and do not let anybody rob you of the potential wealth you can build. Crypto is definitely not a sure thing and is no guarantee to future riches, by any means. But, this is where education comes into play. By knowing what is going on in the technology and the marketplace, you will know what to do (and what not to do) when the time is right. And please do not listen blindly to what any self-proclaimed expert says, not even myself (even though I am not an expert, by any means). Do your own due diligence and act according to what is right for you.
To supplement what’s written above, please take note that if the next bull-run does, in fact, occur in 2021, we can logically infer that the bottom of the crypto markets will occur sometime between now and 2021. We don’t know exactly when we’ll hit the bottom, but perhaps a good estimate is sometime between the end of this summer and the beginning of Winter 2018. (You will know it’s the bottom when you see headlines saying “Charlie Lee re-buys Litecoin”. Just kidding…this is a crypto insider joke for those who have been in the space for a while.) Once when the bottom is reached, we’ll probably bounce a little and move sideways and remain stagnant for a while, just like what we saw in 2014 – 2016. Perhaps at the end of 2019, we may see the market slowly creep up again.
Many people may hate me for writing this blog post because people do not have patience. Everyone wants to get rich overnight. Bag holders despise people who are not always touting an imminent bull market. However, the bull market is not going to occur until most people lose interest and forget about crypto. I know this because it happened to me back in 2013. I heard about how Bitcoin went over $1,000 via a Marketwatch online article. For a few days, I was interested but soon forgot, and then several weeks later I heard Bitcoin dropped back down to the low triple digit levels. If I had known better, I would have gotten into Bitcoin back in 2014. I would be rich now. But, we cannot go back in time to redo things.
(Please see my post regarding how cryptocurrencies could tank this year. It was only a tongue-and-cheek piece at the time, but not really. I was crucified on Reddit for having written the piece, but in hindsight I was correct, after all.)
