Inferno market outlook: The ‘Double Bubble’ Analysis

TL;DR history doesn’t exactly repeat itself, but it rhymes. Prepare accordingly for the similarities – and the potential differences.

After crashing below $10,000, bitcoin is now struggling down in the $8,000 zone. The fall seems to have taken many traders by surprise and overall sentiment has turned more bearish. This is consequently a useful point at which to zoom out and look at the big picture. In this article, we’ll be comparing the previous bitcoin bubble at the end of 2013 with the one we’ve just experienced at the end of 2017. Superimposing price charts for each will immediately give some very useful insights.

The first thing to note is that the pattern is very, very similar. It’s not perfect, but there’s no denying the correlation of peaks and troughs. There’s a reason for that: human psychology doesn’t change either. Every speculative bubble follows roughly the same form – though in this instance, the correlation is particularly neat.

The second is that 2018’s timeframe is massively accelerated. 2013’s bubble took over a year to bottom out. The pattern this time is happening in 3x fast-forward, with every month in 2018 counting for nearly three of 2014’s months. At this rate, we’ll hit the bottom and level out in two months, in May, at the latest (there’s a case for suggesting it might be sooner).

The third is magnitude. 2013’s bubble reached $1,200. The market eventually stabilised a little above $200. This time it topped out just under $20,000. If things were to follow the same pattern, we might expect a brief low around $4,000 before stabilising at $5-6,000. That’s still a 2,000% increase on the pre-run-up price, which is important to remember after a 75-80% drop off the peak.

As we’ve often noted before, markets are inherently unpredictable and you can never state definitively what will happen, only what has happened. All of this is necessarily speculative and none of the following should constitute trading advice – consider this more like an open record of personal strategy. Above all, if you trade, do so with your eyes open and with confidence in the approach you have selected.

Given the repeated pattern of the last two bubbles, the second of which has yet to finish playing out, we expect something like the following:

If we see $6,000 again, it will represent a good entry price. Based on the ‘capitulation’ crash to this level with the huge volume recovery on 6 February, there will be strong resistance here: traders viewed this as a very attractive price point, so it’s possible we won’t touch $6,000 a second time. If we approach it, this will be a strong zone in which to accumulate.

Should $6,000 not hold, $5,000 will a point at which to consider intensify buying and accumulate more rapidly, given that we expect this phase to be brief. $4,000 is likely to be a ‘falling knife’ situation and we won’t expect to have much if any opportunity to take advantage of it. Should the price stay below $4,000 for any significant length of time, we will view this analysis as flawed. That is always a possibility and any trading strategy should accept that.

And afterwards? We note that peak-to-peak, the previous two bubbles took four years. With the accelerated timeline now in play, the 5 months from the December 2017 peak to the (assumed) May 2018 bottom are more like 15 months in 2014 time. All things being equal, we’d start to see another run-up soon after that, with good returns to be had by the end of this year.

We need to make it clear once again that past performance is not an indication of future performance. This is ‘best guess’ stuff and our assumptions will evolve with new information. For example, fiscal quarter 1 is about to end, with implications for the money that is free to flow into crypto. News about regulation, exchanges and new financial products can also be game-changing. It’s quite possible that we’ve already seen the final bottom at $6,000 in February, and that the current level is the ideal accumulation zone.

We will also say that overall the crypto world not the same as it was in 2014. Exchanges are more numerous and active, the markets are deeper and more liquid, and there is greater awareness than ever before. Crypto is very different to how it was in 2014.

Human nature, however, and our capacity for greed and fear, are not.

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