For one, Bitcoin isn't directly subjected to the actions of Mother Nature unlike Tulips. When the Tulips gained popularity during the Ottoman Empire, merchants never thought for a second they would be tapping one of the biggest bubbles in history. The role of Bitcoin/cryptocurrencies and tulips have unique purposes. During the 16th Century, tulips signified opulence, as well as representing the presence of God. Whereas Bitcoins primary role is to form a new way to facilitate trade, an anarchy-currency per say, Money not in the control of a or the Government. Not to mention, Tulips carry an intrinsic role, Bitcoin on thee other hand- has extrinsic value and are more than often intangible on certain occasions. When it comes to the role of .. well... it would be hard to begin point out their differences.
Like all bubbles, it starts with PRICE . Tulips became so popular that the demand would out-soar the real output; there were claims to these Tulips before the were even uprooted! Eventually merchants began to stock pile, increasing the price of Tulips which made it look like a sound investment. This opened the door for Speculation, which is buying and selling Contracts of ownership without actually owning the actual product outright. This action is coherently normal for markets. It is with this same occurrence that Bitcoin and tulips become very similar in bubble-like behavior. This action poses great risk, any time when the market price runs FASTER than the actual exchange of the good, or faster than the production, you can be certain this is subject to end with a crash; At this point, we are seeing Bitcoin and other cryptocurrencies price soar sky high, but why? Well.. its a little thing call reflexitivity, a term used buy investor George Soros. Its a scenario which is similar to the event of a standing ovation; one persons clapping triggers a whole stadium of applause... but some audience members might not even know why they are clapping. It just happens to be a reflex. Same thing with Bitcoin and Tulips, we are not seeing the Bitcoin price reflect its true value rather, inexperience investors drive up the price intending to sell at a higher price to the next bloak for the sake of profit... UNJUST GAIN. What makes Bitcoin and Tulips strikingly similar is the ease of the transaction in the marketplace, which makes Risk vs. Reward run rampant sending prices to the moon. A High reward with low risk environment is also a breading ground for market manipulation and corruption. I am not one who is keen about market regulation, but when a market lacks equity and justice you can expect an ugly ending. How does it end? Well, all bubbles burst when there are no more sellers. This is exactly what happen in Harlem at an auction 1637, when the tulips failed to secure any buyers, because the Smart investors didn't re invest- simply because they didn't see any value in the tulips to begin with! which led to a massive sell off of Tulips, it was then people tried to ditch the flower for anything they could get. That brings us where we are today.. Do we see Bitcoin having the similar fate? Possibly. Are we in a bubble with Bitcoin? Its shaping up to be. But I can assure you the cryptocurrency sector is indeed in a price which is symptomatic for a bubble. In Order for the Cryptocurrency to stabilize, it will need to create market perpetuation of FUTURE VALUE. Meaning, if the Smart investor were to sell, there would need to be a reason for them to buy again at a higher PRICE at a later TIME. But until Bitcoin can secure this time value principle, It can expect the same result of Tulipmania.
This analysis does not take into consideration the macro-level trends affecting markets. Some of these trends include, but are not limited to:
1. Obvious Silver and Gold price action manipulation.
2. Massive sell offs and buy backs of US Bonds on 11/9/2017 and 11/10/2017.
3. Low interest rate environment going on for almost two decades and no signal for change.
4. MASSIVE fiat inflation, with not signal for change.
5. Rapidly expanding use case for the underlying technology of Bitcoin.
6. Liquidity of Bitcoin into ALL cryptocurrencies from now and into the foreseeable future.
Including these parameters does not even begin to scratch the surface of IMF, institutional banks, ETF markets and Governmental Central Banks attitudes regarding cryptocurrency. All signs point to a BULL MARKET going forward. I hope and pray for a correction and overbalancing. However, there is more than just macro level analysis that predicts a bull market going forward.
In this market, Bitcoin is a flight to safety asset. Bitcoin is a convertible virtual currency, which will benefit from increased usage and demand in the future. BOTH of these simple facts are played out in bitcoin's price action as it relates to Metcalfe's Law, "the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2)."
This price action will play out going forward, especially when Bitcoin ETFs are introduced, which could be months away.
Nice red line you drew there. However, i'll be buying all the way, "down."