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Article / 05 January 2017 at 14:41 GMT

Bitcoin $200 plus plunge fits with double-bubble thesis

Former managing editor, TradingFloor.com / Saxo Bank
Denmark
  • Bitcoin plunges more than $200 in the space of an hour
  • Plunge could fit neatly with Kim Cramer-Larsson's two-bubble thesis
  • Bitcoin went through two bubbles in 2013 before the crash of early 2014
  • If thesis is correct, Bitcoin is likely to get a second wind

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Bitcoin plunged more than $200 in just over an hour on Thursday. Photo: iStock

By Martin O'Rourke

Cryptocurrency Bitcoin had a rude awakening Thursday plunging more than $200 from an intraday high of $1,153 to $887, according to CoinDesk.com.

Bitcoin was at $941.13 at 1415 GMT.

Bitcoin loses more than $200 in little over one hour

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Source: CoinDesk.com

The correction has virtually wiped out all the gains since the start of the New Year although the cash surrogate is still some 30% higher than it was on December 1.

In an article on TradingFloor Tuesday, Saxo Bank technical analyst Kim Cramer-Larsson said: "Are we building a new, higher bubble, well most likely."

"It will most likely test the previous all-time high at around $1,150, ie. within a couple of weeks, but I don’t think the resistance at that level will be strong [and there] may be just a minor correction  before Bitcoin moves to higher levels pushing for $2,000."

Cramer-Larsson's words look prescient as the libertarian led cryptocurrency seemed to meet resistance at the $1,150 point.

Chinese buying — some 90% of all global trading in Biitcoin takes place in China — has been propelling the cryptocurrency ever higher since last summer. It remains to be seen whether the latest correction fits Cramer-Larsson's two-bubble theory that predated the crash at the start of 2014 when Bitcoin was just shy of $2,000.

Larsson Tuesday said: "If we look back in history we saw a bubble pattern in May 2013. What now looks like a small correction was in fact a bubble."

"How big that bubble and correction actually was compared to the next one is best illustrated by looking at a log chart and compare it to the linear chart," he says. "So why do I believe it is just another bubble?"

Bitcoin normal linear chart showing two-bubble process prior to 2014 crash
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Source: BitStamp

As to why the cyrptocurrency fell so quickly is difficult to determine but may have something to do with the reversal in fortunes of USDCNH in the last two days as the Chinese government looks to clamp down on capital flight.

Bitcoin was at $959.50 at 1435 GMT.


Martin O'Rourke is managing editor at Saxo Bank

3y
Kim Cramer Larsson Kim Cramer Larsson
The theory of bubbles: A slow start where the rise becomes steeper and steeper, then a correction (sometimes two) called pre-peak(s) before the blow out top followed by a crash. When the bubble implodes the price usually drops back down to around the pre-peak area.
That is the usual picture of a bubble scenario regardless of time frame and interval. Daily, Monthly or intra-day.

From below hourly chart we can see that Bitcoin has done exactly that. Pre-peak or correction area is between 860 and 940 USD back in December 2016. Bitcoin dropped to just below 900 USD this morning.

Was that then over for the bullish market in Bitcoin now a bubble burst once again. No not necessarily. We see bubble in bubbles. So this latest drop or implosion of a bubble could be the correction or pre-peak on the way to the next higher bubble ie. towards 2000 USD.

See attached chart from bitcoincharts.com
3y
Patto Patto
Believe it or not ? $10000 invested in Bitcoin in 2011 is worth $38 million now (according to this chart )
3y
Martin O'Rourke Martin O'Rourke
Bitcoin opened the day at $1,005 but is down 4.5% at 0815 GMT to $960

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