Bitcoin has gone parabolic. Again. We’re now at $1,736. By the time I finish writing this we may be passed $1,800. This time though the parabola is not as extreme as 2013, at least not yet. If the 2013 bitcoin craze were to repeat itself, we could see a top at (take a breath) $8,634. Get much higher than that and a penny becomes smaller than the quantum Planck Length in bitcoin terms. The universe might buckle at that point. It’ll be like when Antman went subatomic.
Last time it took 56 days for the parabola to top, so again if we see something similar to what happened in 2013, that level could, at least theoretically, be reached in just 10 days by May 19th, and then crash down to $1,000 by next year.
That’s if everything repeats itself exactly. Will that happen? Almost certainly not. Market history does not repeat itself in such easily predictable patterns. The point is though that once you go parabolic, almost anything can happen, so long as at makes no sense. Trying to pick the top of a parabola is not an investment. It’s a dangerous game, filled with novices with little capital high on get-rich-quick fantasies and easily spooked if a trade goes against them even briefly. Much like real estate flippers in 2006, silver in 2011, tulip hoarders in 1637, or dot com buyers in 2000.
This is not to say that there are no fundamentals behind this drive higher – there are, but they’re just lagging behind the move. Here’s what I believe is influencing the current spike, or at least the beginning of it, though it’s unclear to what degree. Below is the BTCChina exchange going back to mid 2015. Notice the very big and obvious volume explosion from October 2016 through January 2017. Something happened in China between October and January. Someone, or a group of people, moved a lot of money. During that time bitcoin went up in yuan terms from 4,111 to 8,896, and then crashed back down to 4,893 when the volume spike tapered off.
Notice in the next chart that there is no corresponding obvious volume spike on US bitcoin exchanges. Below is Bitfinex for example. During the Chinese bitcoin volume explosion, bitcoin in yuan terms more than doubled, while bitcoin in dollar terms was up only 90%.
But here’s where it gets interesting. According to JP Morgan, September was the first month of growth in gross gaming revenue from the VIP sector in Macau in 29 months, just around the time that the Chinese volume explosion in bitcoin began. What could be happening is that VIP’s are, or were, shuttling money to Macau by buying bitcoin and selling it for cash there. This may be connected to UnionPay pulling its ATMs out of Macau as high tech facial recognition ATMs take their place. Beijing is trying once again to crack down on the capital outflow at its source at the ATMs. However, there seems to be no continuation of that Chinese volume spike now, which is why the current run looks like it may have gotten ahead of itself.
Remember the silver spike of May 2011? This is what it looked like.
Silver tripled in 8 months, and then all it took to make the parabola break down was an increase in margin requirements by the Comex and all the weak hands ran out at the same time. It took 5 and a half years for silver to bottom after that.
All it would take to break this parabola is some kind of move against a Chinese bitcoin exchange by Beijing. It could even be a mandatory increase in margin requirements at the exchanges just to spook the weak hands again. Whatever it ends up being, any move against bitcoin could cause a serious fall from these stratospheric levels, and fundamentals will have to catch up once again.
There has been some commentary floating around that a possible revival in the Winklevoss bitcoin ETF could be behind the current price surge. But even if approved, that would just add more speculative froth. In order to sustain bitcoin prices like these, one of two things need to happen. Either fiat price inflation spirals out of control and people flee to bitcoin to preserve their capital, or finalizing transactions in bitcoin becomes much more popular so people do not have to convert back into cash often in order to use it.
Price inflation has not gotten out of hand yet, and has actually fallen in China over the past two months, and bitcoin is still not that popular for finalizing transactions. It’s still being used primarily as speculative and as a good to move fiat money around without bank fees or detection. That alone is not enough to sustain this kind of move in price.
I doubt that bitcoin will move back below $1,000, perhaps ever, but it needs to at least move sideways and cool off a bit before any sustainable move higher. But have fun trying to pick the exact top of this move if you’re into that.