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Has Bitcoin bottomed? Here's how it compares with past bubbles

Crypto diehards see Bitcoin's 70 per cent rebound from its 2018 low (and even bigger gains for so-called alt coins) as the start of a new bull market

Bloomberg 

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Only four months ago, Bitcoin seemed on the verge of extinction as investors fled one of history’s biggest bubbles.

But after the steepest two-day rally since the height of crypto-mania in 2017, more and more market observers are asking the same question: Has Bitcoin bottomed out?

Crypto diehards say the answer is yes. They see Bitcoin’s 70 per cent rebound from its 2018 low (and even bigger gains for so-called alt coins) as the start of a new bull market. Bears counter that nothing has changed to make digital currencies more attractive to Wall Street or Main Street.

Given the crypto market’s extreme volatility and dearth of reliable valuation metrics, predicting what’s next for Bitcoin is an inexact science at the best of times. But traders looking for perspective could do worse than revisit some of history’s most notorious bubbles -- from the late 1980s surge in Japanese stocks to the 2006 boom in Miami home prices.

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The chart above show how the duration and severity of Bitcoin’s post-bubble crash compare with those of previous speculative manias. A few takeaways:

  • The 84 per cent peak-to-trough slump in Bitcoin is now deeper than losses that followed the Nasdaq bubble in 2000, oil’s boom in 2008 and several other notable market manias.

    But it still hasn’t quite matched the Dow Jones Industrial Average’s slide during the Great Crash of 1929

  • Bitcoin’s five-year gain in the runup to its peak is by far the biggest in the sample -- more than 140,000 per cent
  • The 12-month duration of Bitcoin’s slump is on the shorter end of the scale. The bursting of bubbles in US stocks and home prices played out over longer periods
  • If Bitcoin has in fact bottomed out, history suggests there could be further upside. The Nasdaq more than doubled in the five years after its post-bubble low and has since reached record highs that are well above its peak during dot-com mania
  • Japan offers a cautionary tale for anyone betting that Bitcoin has hit a long-term bottom. After the Asian country’s stock bubble burst in 1989, the Nikkei experienced a series of sharp rallies that ultimately ended with fresh lows. The cycle persisted through the global financial crisis in 2009

First Published: Sun, April 07 2019. 09:40 IST
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