Rally, or Another Bubble?

Home » Rally, or Another Bubble?

Bitcoin is a relatively new phenomenon gaining supporters on a daily basis, so there are a lot of you out there who are probably too new to remember last year’s $31 bubble from direct experience, but it seems like everyone has at least heard of it.

Bitcoin has seen extremely high volatility and that makes it very attractive to a certain kind of investor – the kind who has mastered getting rich regardless of which way the market moves. It’s also a fairly shallow market still, so comparatively small amounts of money can move Bitcoin’s market price in dramatic ways. All of this combined makes it very difficult to see the signal through the noise – to tell a genuine price increase from a speculative bubble. So is the recent rise past $17 a genuine price increase or the beginning of another speculative bubble?

The only honest answer I can give is the cop-out answer I give when religion or politics comes up in polite company: I don’t know. That’s the absolute truth – I don’t know, neither do you, nor does anyone else… But my gut says it’s genuine.

There are a lot of interesting economic phenomena surrounding Bitcoin, not the least of which is radical transparency. In a recent interview, Josh Harvey from StompRomp indicated that he felt the slow rise to $12 we’d seen in those days was a pre-emptive market response to the reward halving and that it would replace the price spike we all expected after halving. My gut says that what Josh claimed was true, but that he underestimated the size of the overall market and the proportion of the market that saw the scarcity coming.

I could post a bunch of charts (log scales for the win) and “evidence” to back up my claim, but I’d be lying if I claimed to know anything at all and my data could be confirmation bias as easily as actual information, so I won’t post anything. All I’m really qualified to say is what I feel, and I feel like the price increase is genuine – only time will tell if my gut is right.

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