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Short

If X happens, do Y.

MTGOX:BTCUSD   Bitcoin / U.S. Dollar
7179 36 31
My prediction remains bearish , but I want to detail a very-real scenario that I believe has a high probability of occurring. This prediction acts against a backdrop of why I believe that yes, this is a bubble and, no, anything north of 1000 is not sustainable.

To fully deluge my bearish reasoning I'd need to write a short essay so in the interest of brevity I'll keep this fittingly short. We are in a state of mania where people's expectations and reasoning have completely diverged from reality. We have experienced all the bullish news that there is and, for now, will be. That people are deluded is obvious from their expectations of how the news is going to impact the price. Very few seem to have considered that the price already accounts for the supremely bullish sentiment that we are currently experiencing. The current price accounts for more than that - embedded within is the sum of speculators hopes, dreams and illusions.

Most people seemed to interpret the sideways action north of $1200 as evidence of an extreme level of support. Any dip in price was immediately bought by a seemingly infinite             pool of so-called investors. However the price was being supported by speculators - not investors. This is a non-trivial point for it establishes that the price, high as it was, only received support at certain levels due to expectations that it would reach yet further. But it had hit an inevitable wall since the expectations of a rise in price were not being acknowledged by reality. The buy support was not support, so to speak, it was expectation.

All forums for discussing Bitcoin have become little more than a hive mind circle-jerk with expectations that extend well into the range of delusion. The traders on Reddit's "Bitcoin Markets" act as a sort of sentiment index of Bitcoin's learned traders and beyond the usual platitudes and market truisms ("But maybe there will be a correction") very few were bearish before we saw a crash below 900.

Given the backdrop of corrections, the extreme deluded bullish sentiment tempered with uncertainty, widespread belief that Bitcoin is truly worth             $10k USD, the notion that China will lead to a trillion dollar market cap and the foolhardy idea that Bitcoin is about to attract new investment I want to advance the following idea. In the short term I believe that we may be about to enter a rapid rally backed by strong volume and extreme momentum similar to what we saw when we crashed from $900. This rally will be fuelled by hope, greed and panic. It will end - rapidly - in an epic sell-off as people realise that there are no more greater fools above them.

To confirm, look for large volume on buy orders coupled with weak declines. Sentiment should be manic with the notion that $1500 - $2000 is the next target being widespread. As I write this, I see a clear cup-and-handle formation on Gox and BTCChina within the 5m charts.

This is just a scenario that I estimate to be strangely probable, if it comes to fruition you may make your own judgement. In any case, my sentiment is bearish and I believe that we will be south of $1000 soon.
I think you're onto something here. The only thing that makes me believe this could still go to $1500-2000 without a now long overdue due crash in-between is the afflux of new money into the exchanges. The recent price milestones ($1000, gold parity, etc) have generated a lot of publicity and many people are only now hearing about Bitcoin, and they want in on a market that returns over 10% per day. Reason would say that you're right, but it's possible we're now well beyond reason now.
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Hi, I liked what you say, however I still think that pepole are just starting to come to bitcoins. New people every day. I think that the rate at which bitcoins become available is lower than the rate at which people are arriving to buy bitcoins... Bitcoins are useful and that's why people demand it constantly. I think the price will hit the 10K easily. offcourse that we will see corrections and so until it does... Regards!
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This may very well happen. As soon as I clicked publish a buy occurred backed by huge volume followed by a flag pattern that, I believe, will break up into an uptrend. I'll be watching momentum closely, look for volatility as the mark of panic and an indicator of when to short. If we rocket up to new highs, it's time to exit ASAP.
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*Pop*
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Excellent write-up Drew. Glad that you are mirroring my thoughts. It's strange to feel like a minority when you have a bearish outlook on the short term future of btc. To me, the recent mania should be a factor that is impossible to ignore. I don't see the exponential growth we've been experiencing ending any other way than a large-scale correction... sooner rather than later. I'm out for the moment waiting on the drop, but will be following momentum closely as you are. We'll just have to wait and see.
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I'm am of those crazy bulls :) I will follow this chart hoping you are wrong...
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How do you seriously consider the current value to have any connection to reality? We are already moving sideways, and all those new "traders" will lose interest and try to cash out, crashing the price as they do so.
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Tamis UglinessBubble
Well you see I'm going to wait to see how this plays out before investing the fiat I have left ! But I won't sell my BTC, I'm in a buy & hold strategy for those !
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Wow, I just found a chart that explains exactly how I've been feeling since the beginning of the weekend. Excellent summary as well. Thanks Drew.
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What price would make this chart not valid ? You also say that the bounce-back speed was important, how fast do you expect it ? I have 11k$ to invest but i'm going to wait how this plays out before buying BTC this high ! Great chart Drew !
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dot Tamis
The bounce back speed has been precisely as I expected, but I see the current momentum as a supremely bearish sign. We are not looking at a healthy market - isolated buys propel uncertain traders. Speculation abounds, but our tether is increasingly short. Sentiment indexes are at an all time low. The 4 hour chart shows that the volume for the sell-off we just experienced was higher than all previous crashes, and yet, the 2h chart shows that the buy volume back to our current price has been comparatively much lower.

People are psychologically prepared for a crash, but no one wants to be the first to sell in an uptrend. The uptrend itself is propelled by this fact. It's an uptrend driven by fear rather than greed. This is why a catalyst is usually required for a bubble to end, my theory is that excessive momentum will act as such a catalyst, the momentum is possible due to artificially low supply but eventually it reaches a level where bears become greedy and consequently the market begins to panic.

It's not the price that's important it's the momentum and volume. I am watching the market intently at the moment. There's no reason to think we are going to pop quite as badly as in April for we lack the catalyst of a DDOS.

I mean, obviously, if we reach $2000 you can consider the chart invalid.

My advice for the very short-term would be to simply set up a stop short order at 1100 whilst actively trading. You can be sure that, should we suddenly plummet to that level a crash is going to follow.

I'm always aware that I could be wrong both in my estimation of how the crash will occur and even in whether or not this bubble will end.
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What if the headlines "BITCOIN PASSES GOLD" start appearing everywhere? Maybe that could get some fresh investors in?
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News from China has caused us to break through support.
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Incredible chart Drew ! Excellent work...
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You really saved my bacon!
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dot sdfghjkl
Glad to hear it!
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Awesome prediction.
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Very nicely done!
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Excellent prediction, what are your thoughts on where we go from here?
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dot DushanPerera
South, note the symmetrical triangle (AKA a coil) forming in the hourly chart.
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So, sell your coins while you still can?
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dot m3atiest
I feel very confident that the price will go lower.
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what now?
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Tamis Cryptolicious
This was just a correction ! great chart none the less !
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I would really like to hear your prediction right now based on the current movement
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dot JakeDockstator
Personally I would consider this chart invalid unless China experiences a breakout on the downside. I have not had time to analyse the situation in China but.I know they have an appetite for speculation. My only certainty is that China will dictate where we go from here, not Gox.
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I would not doubt your chart. It looks identical to mine. (not uploaded)

China is awake right now (lol), but in the sense that there is just...too little movement, its starting to stagnate. It'll start its movement down.
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Smh
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dot simber
No refunds.
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rofl. <3
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I made money brotha. Next time cool it with the offensive language, it will hurt less when your dead wrong.
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dot simber
One for posterity.
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Didnt you consider this chart invalid less than 24 hours ago? I agree with you, and bitcoin is surely hard to predict, but i think its fair to point out the losers as much as the winners, as i have lost plenty :)
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I'd just like to say a final word on this chart as I'm aware that it has gained far more popularity than I initially expected.

Firstly, Traxtar928 was right to identify the value of the chart in the write-up. I drew the lines based on a qualitative analysis of the market. No TA was involved whatsoever. If it is accurate then that is only because the analysis itself was accurate.

I correctly predicted the first crash but lacked the foresight to envision the role of previous price action and various other factors (the difficulty of withdrawing fiat etc) on the consequent rally. I had anticipated the crash, but the rally somewhat confused it me. It became immediately obvious that I was missing the larger picture. My reasoning, however, remained unchanged and that lead me to predict a powerful throwback when we passed $1200. Some attribute the consequent crash to coincidence, as a strong piece of bearish news emerged at the time. I disagree on this point, I believe the impact of the news may have affected the magnitude of the crash but it certainly did not dictate its incidence.

Following my reasoning, the consequent "rally" would be stopped far shorter than the previous throwback. The realisation that new money had dissipated would break the illusion that bulls could simply buy and sell in perpetuity. This realisation would cascade, disseminating like a virus as the momentum of the decline in price continued to increase. Thus the bubble would end.

Some argued that I was short-sighted in anticipating that there would be no further bullish news. I do not agree that this is the case. In reality, the impact of bullish news is vastly overvalued and people have yet to account for the market cap of BTC which can absorb what would have previously been powerful news. In simple terms, if the price was still $120 and the CEO of PayPal had actively endorsed BTC we could reasonably expect a rise. But when the price is $1000? Analogously, people vastly underestimate the extent to which the public are aware of Bitcoin. I believe that it is far more widely known than commonly anticipated.

I continue to be a bear in a bull market but the past few days have taught me a great deal about timing. There is too much irrationally and too much disparity between the reality I perceive and that reported by the majority. But I am extremely alarmed by the popularity of this chart considering that I began learning about trading a little over a month ago (my identification of chart patterns is a testament to that). Everyone should be mindful of this when looking at this chart, don't place any bets just because I was right before.

Case in point, I haven't accounted, at all, for China's unique relationship with speculative bubbles. Things like this are like Wittgenstein's rabbit - they can completely change what you thought was previously a given.

Remember that it's always obvious in hindsight.
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I prefer the simpler example that you're a time traveler. :)
In all seriousness though, thanks for the analysis, eloquence, and rationalization.
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Thank you for your update. I think many of us (at least myself) were following your charts as another source of information to follow. I don't like to use a single source for my market information, and you have had some excellent reasoning behind why you think the market is acting as such. You may have started only a month ago, but many of us have never truly started at all.
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