Monday, 11 December 2017

The Rise and Rise of Bitcoin

The Bitcoin prices are fueled by news of positive developments. As long as the positive news keep flowing, it keeps rising.

Smaller positive news have smaller price impact while bigger news have bigger price impact. That's a no-brainer. But exactly how much is tricky.

 The 3 Bitcoin's Developmental Stages 
And there're really no bigger development than these 3 milestones shown in this chart, and the Bitcoin prices reflected their importance.

I consider the 2 listings of the Bitcoin futures contracts on 2 separate exchanges of CME and CBOE as a singular developmental milestone because they're just more of the same things. And what's more, they occur closely in time. From a historical or public perception point of view, they're really one unique Bitcoin development event.

Bitcoin milestone developments from 2013 to 2017
The 3 most important Bitcoin milestones (prices in log scale).
(Click image to enlarge)

When a Bitcoin milestone news has run its course, its prices start to decline until the next important news event.

If we look the the chart using liner scale - which we all tend to use - then the latest price rises in 2017 seem excessive because its prices has gone up by tens of thousand of dollars while the prices in 2013 (the 1st milestone event) has only gone up by hundreds of dollars.

As stunning as the run-up in prices in 2017, it's still no match when comparing with the 1st milestone event of U.S. Congressional Hearing in terms of percentage increase. If you plot this chart in linear scale, you only see a tiny blip shown on the chart for this 1st milestone, and that's misleading when looking at Bitcoin price history when prices cover 3 orders of magnitude (100s, 1000s, and 10,000s).

Linear scale is fine for looking at short time-frame for trading purposes. To look at prices at the correct historical perspectives, log scale should be use.

The larger (and largest) price spike in Nov 2013 makes sense because its market cap is very small, and so its volatility tends to be greater. Also this 1st event should consider the most significant because it's the 1st, and at a time when Bitcoin community is still very small, and Bitcoin has close to zero credibility on Wall Street. This is an endorsement that could be considered as make or break event for Bitcoin.

In general, these 3 milestones are all significant endorsements from major mainstream bodies. The 1st two are from governments, and the last one is from Wall Street.

 The Year the Bitcoin's Voice Price Broke 
So this year can be considered as the coming of age or coming out of Bitcoin because after the 1st milestone, nearly 4 years has elapsed without another milestone or much public gaze until 2017. This lack of milestone development news have caused prices to decline from over $1000 to a low of just over $200.

But when Bitcoin has not one but two milestone developments in 2017. Not only that, or because of that, Bitcoin is thrusting into the public consciousness. It's a year when it becomes mainstream.

Even as late as 2016, CNBC only mentioned Bitcoin occasionally. In middle of this year, CNBC reported far more about Bitcoin than gold. Sometimes gold is only get talked about because of Bitcoin as Bitcoin is considered digital gold. In the last few weeks, Bitcoin gets more attention on CNBC than Apple or Amazon. Only tax reform gets the same attention.

CNBC Bitcoin coverage

This year of the breakout isn't just a figure of speech for the news headlines and public awareness, but an actual technical breakout that can be clearly seen from the chart. From a technical point of view, 2017 should be a year when prices should run up strongly after breaking out of a 3-year base (which wouldn't matter if we use linear or log scale). This is indicated by the horizontal line that marks the price peak of the 1st milestone event.

If no further milestone event continues to emerge, i expect prices starting to fizzle out as they did in the past, until the next milestone event come forth. To time all these would be extremely difficult. Next few months would be very interesting for the development of Bitcoin prices.

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