Bitcoin: The Blow-Off Stage Is Now Upon Us
Cryptocurrencies are the latest rage, and nothing quite grabs headlines like Bitcoin and Bitcoin prices. This past weekend, the Bitcoin price crossed the $4,000 threshold, and for someone like myself who expresses his opinions on investment products, this feat marked quite a significant accomplishment.
In a January 5, 2017 article titled “The Bitcoin Price Bubble Is Far from Over,” I expressed my opinions on Bitcoin and Bitcoin prices. My opinion is a tad bit conflicted because on one hand, I believed that Bitcoin in its current form is nothing but a fad, but at the same time, I expressed that I expected higher prices to prevail before this fad finally runs its course.
I clearly stated in that publication that I believed Bitcoin was in a bubble that was replicating the Dutch tulip craze of 1637, and all the other price bubbles that followed it. At the time that report was written, Bitcoin was trading at around $1,006, and I stated that I foresaw Bitcoin prices surging past $4,000 before the bubble fueling higher price finally bursts. That number was attained this weekend, and there is very little to suggest that this bubble has reached a crescendo.
I must admit that in January, when I wrote that report, I used $4,000 because I felt that it was outrageous enough to garner headlines, but at the same time, I knew it was conservative enough that the level could be easily reached. In reality, I think Bitcoin can easily surge north of $15,000 before a long-lasting top is finally formed. Now that I have put that number on the table, we know approximately when I’ll be expressing my opinions on this cryptocurrency once again.
Calling the exact top is a difficult task, and I am not here to do that. One thing I know for certain is that Bitcoin is now in its blow-off stage, and once that blow-off occurs, the bubble will burst. And just like all the other bubbles that preceded it, lower prices will prevail and many tears will be shed.
The blow-off stage began when Bitcoin breached the previous all-time high that was set in November 2013 at $1,165. This level was breached in February 2017, and with it, the whole basket of cryptocurrencies have followed suit. The blow-off stage is where most of the money in these cryptocurrencies will be made. This stage is characterized with retail participation, so do not be surprised if your friends and neighbors have decided to pull the trigger and buy into the hype, hoping for further gains.
The Bitcoin craze is actually overshadowing a much bigger problem that is occurring on the world stage, which involves the global reserve currency falling from grace. The U.S. dollar is performing terribly in 2017, down against every major currency. The public is enamored with cryptocurrencies but where attention should be paid is towards what I believe is the only true alternative currency, the precious metals market. These metals are tangible assets and the birthplace of fiat currency. They have stood the test of time, and if there were ever a need for an alternative currency, I have little doubt that these metals would play a role in it, one way or another.
On January 5, 2017, I stated that I did not see Bitcoin prices trading above gold on a sustained basis, and thus far, that couldn’t be farther from the truth. Currently, there is quite a gap between the two. Gold is trading at $1,272.93 a troy ounce versus bitcoins at $4,131.01. I am not sure why anyone would buy Bitcoin when an asset like gold can be bought for much cheaper. Nonetheless, this enormous gap needs to be made up if my theory hangs true. I would love to say for certain that I am confident this gap will be made up, and a large majority of my beliefs are centered around that notion. The problem comes with timing, and markets can remain irrational longer than most can remain solvent, which is something I have learned firsthand.
Bitcoin is on the main stage generating headlines as it continues to defy logic by creating new highs. I still believe that Bitcoin prices are exhibiting bubble-esque price action, and like the bubbles that preceded it, this one too will pop, and lower prices will prevail. The question that remains is, from what heights will that bubble pop? Look for Bitcoin prices at $15,000 as an indication for when to expect my next update.