Prediction for a future event: “The Spike”

Lately the Bitcoin price hasn’t been moving much, at least by Bitcoin standards, and has provided a nice respite from the price parroting that we witnessed in the last big run-up. In it’s place has flourished renewed exploration and discussion regarding the technology itself, how it can be incorporated, implemented, and improved.

But don’t think for a minute that Bitcoin is going to plateau long-term around the $100+ mark. Observing the last two years, we can see that Bitcoin has two basic modes: steady-as-she-goes, and have-you-seen-my-beachball-bonkers. From late 2011 until early 2012, Bitcoin would sit still for months at a single price, occasionally ratcheting up or down depending on the news (i.e. “WordPress now accepts Bitcoin,” or “Bitcoin Savings and Trust is a Ponzi Scheme.”) It can do it! The catch is that Bitcoin only likes to chill out when nobody seems to be looking. From February to April of 2013, we experienced another “Bitcoin Unhinged” period, which is arguably finally calming down.

I would like to make a prediction that in the next phase of screws-loose-wheels-coming-off-the-trailer, we’re going to see a kind of price movement that is almost never seen in financial worlds: I’m going to call it “The Spike.”

I’ll define “The Spike” as a price movement upwards of 200% within a 1-month period, after which the price will not correct below the new level, ever.

It is essentially a reverse correction, an upside-down bubble pop. While 200% is clearly an arbitrary figure, I believe that there are 5 conditions that will eventually facilitate such a move.

1) Liquidity (or “Friction”): During the last two bubbles (“bubblettes”), Bitcoin was like a pond into which floods of dollars wished to flow. These waves of buyers were held back by the floodgates that represented the barriers to trading fiat currencies for Bitcoin on the exchanges. For every person yelling “I’m buying Bitcoin right now!” there were ten screaming “I can’t get US dollars into Mt. Gox!!!” By the time the frenzy was over, most people just retreated from the gates, dollars still in hand. Right now, while the waters are calm, Mt. Gox and new exchange entrants are tearing down the floodgates one by one, building canals and conduits that will enable unprecedented liquidity going forward. When fiat can flow more freely, Bitcoin will be capable of hitting new high water marks within breathtakingly short periods of time.

2) A Wake-Up Call: In 1933 US citizens received a wake-up call when gold was revalued from $20/ounce to $35/ounce. Granted, the analogy isn’t perfect, since in this case, the price of gold was artificially pegged to dollars, or more precisely, the price of dollars was pegged to gold. People who were paying attention to the rate of gold exports overseas were able to see that the true value of gold was much higher than $20/ounce, and if they were able to successfully retain their gold through the “confiscation” then they came out much better off on the other end. As you probably know, gold never looked back after $35, and is trading today at around $1,430/ounce.

3) Additional Milestones: So far, Bitcoin has blown through milestone after milestone in its quest to prove itself as worthy of mainstream acceptance: Dollar parity, survival after large Bitcoin scams, holding steady through a block reward halving, thriving after a blockchain fork was resolved within hours, chugging along with transactions after network processing power increased more than a million-fold in the transition from CPU to ASIC mining, and landing after each subsequent bubble upon higher valuations than before the run-up. Each milestone reached is one less in the diminishing grab bag of potential SNAFUs. Somewhere in that bag is the last milestone, the straw that will break the camel’s back and send Bitcoin into stratospheric valuations.

4) Dollar Weakness: This is related to point #2, but still deserves its own slot. Though probably unlikely, hyperinflation in the US would be devastating to lenders, savers, and bond holders. Conversely, it would be a boon to debtors, owners of commodities, and Bitcoin owners. In a hyper-inflationary environment, the violence of Bitcoin’s price movements would only be limited by the imagination of the Fed.

5) Investor Trust: After surviving two bubbles, Bitcoin is looking more and more robust. In the next run-up, the Bitcoin buyer pool will be more heavily represented by individuals who feel confident in the future of Bitcoin. The next time that Bitcoin rips open the ceiling, rather than trying to time the market and sell at the top, these buyers will have a more relaxed long-term perspective, trusting that Bitcoin will prevail as it has in the past, and will keep their coins off of the exchanges. I believe the community would label them the “strong hands,” and it’s probably not a bad term.

Trying to predict the future is a fool’s game, but it can still be fun. Observing the landscape, and recognizing the fact that Bitcoin is still a tiny drop in the financial ocean, I do believe that everything is in place for an obscene upwards move, that people will wake up and check the price, and be absolutely floored, but will refrain from panic selling. I don’t think this day is imminent, since we’re arguably still in for a prolonged cool-off, nor do I think it is inevitable. But I do think that the conditions permit such a leap, at least in theory.

What do you think? Are the crazy Bitcoin price fluctuations limited to plateaus, bubbles, and corrections, or can we also see something like “The Spike?”

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12 comments on “Prediction for a future event: “The Spike”

  1. Jim Thompson says:

    While a spike is certainly possible I don’t believe it necessary. If Bitcoin survives at all it will climb to much higher levels than what we are seeing here. Valuations are far to low for it to serve any useful purpose by any sizable segment of the population. The fate of Bitcoin is still up for grabs but getting a foot in the door here might be wise.

  2. speculator says:

    Either “the spike” or “the gap up”. Perhaps there will be more than one, each more epic than the last.

  3. George says:

    you are absolutely right! It’s timing is not far off with the accelerated debasement of all government fiat currencies. We might get a ”Spike” down
    after the G8 meets in June and decides to go after Bitcoin. Will be great buying opportunity

  4. jimmybarge says:

    “upside-down bubble pop” – sounds good to me!

  5. k4t434sis says:

    Reblogged this on kat5 . postfix.

  6. Wowowow, you guys are on dreamland planet! Everybody should remember what bitcoin is on the first place.
    While it may indeed have a little spike from where it trades now, it will eventually collapse to near zero, not zero but near zero.

    See why below:

    http://shadowcolumnist.wordpress.com/2013/05/10/bitcoin-beware-of-further-falls-the-closer-its-value-goes-to-zero-the-closer-it-gets-to-its-true-value-2/

    You can also read

    http://shadowcolumnist.wordpress.com/2013/05/12/bitcoin-and-the-very-extraordinary-one-revelation-3/

    Good read and good luck if you re a bitcoin holder
    Shadowcolumnist

    • Anonymousg64 says:

      Horrible read, bla bla bla until you reach Zero and then you know that the author is a total idiot.
      Good luck with your propaganda, everyone will see through it.
      BTW, GOD does not exist and Jesus never existed.

    • Steve says:

      @shadowcolumnist. I recommend you learn to use a spell checker before publishing a blog! Bitcoin is a complex subject with small details that are critical. So, logically, if you can’t even get spelling sorted, you have very little chance of correctly analyzing Bitcoin! By all means criticize Bitcoin, it’s welcomed, but please do it with quality.

      Barring too many more disasters, I agree that a sharp price hike is virtually assured and likely within months.

      @Anonymousg64 I am God and I can prove it. :-p

  7. Ahah, yes i know i should use a spell checker sometime. Yet the complexity of bitcoin is precisely what people are using as a smoke screen to divert the true issues relating to bitcoin.
    While nobody may dispute the fact that bitcoin may be here to stay due to the way it is programmed, built, what we should discuss about is what this is really and what some are driving some to beleive it is through what appears to be a one way campaign.
    I find the subject interesting, not on a technical point of view but rather on the impact bitcoin or the next bitcoin could have on society as we know it and this for several reasons.
    -the value of bitcoin is only backed, driven by current perception that bitcoin is unique, untouchable, totally secured and the list can be long…
    -i love bitcoin but probably not for the reasons most of those supporting bitcoin do. Being liberal i wouldn’t mind being able to take advantage of a parallel economy where the government would have no possibility to raise any taxes on my incomes.
    I disagree with benefits, with public money being used to finance minority groups whose ideas i may disagree with ect…
    Push the bitcoin mania further and allow it, or any other sort of digital currencies to exist and most who find it so cool to use bitcoin might soon find it hard when the state won’t have cash to pay for their benefits…
    -Would i buy bitcoin now? no because there is nothing backing its value. i would believe rather into a form of encrypted bearer certificate with real asset backing the value.
    -would bitcoin be allowed to survive by governments, and that’s a rather big if, it will mean that digital anonymous currency will then be allowed. Much better form of digital currency with value backed by real assets rather than just thin air will then emerge rather fast. Would this become the case one won’t need being a genius to see where the value of a bitcoin will then head! near Zero….
    Be sure i won’t be buying bitcoin while i bet most pushing for it wouldn’t either. I might invest in a company that will take advantage of rather naive people who might think it’s rather cool to buy bit coin but that’s about it.

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