The bitcoin bubble

By | April 1, 2020

In general, bitcoin bubbles tend to grow after a fresh wave of new users enter the market.The first Bitcoin bubble registered popped out in 2011. Later a second bubble followed this in late 2013. After that bubble burst the market had to wait four years before they all exploded spectacularly with the biggest Bitcoin bubble.

Bitcoin reached $20,000 in December 2017-a record price in any cryptocurrency’s history. But once the bubble erupted, the digital asset crashed to lows of $3,150.Because the price of Bitcoin is currently around 50 percent of its all-time high, are we ever going to see another massive run?

Let’s look at what’s causing a Bitcoin bubble, and whether one can be predicted.

History of Bitcoin price

Looking at the above chart, you can see how the price of Bitcoin fell to about $3,150.Price action has recently shown bullish signals in terms of US dollars, as the EMAs are once again starting to diverge and point upward. The same signal appeared from April to September of 2019. During this time, BTC climbed from around $5,000 to nearly $14,000 around 180 per cent.

You can see that volume is building up and creating a safety net under $9,000, not only that, but also looking at the volume profile. In terms of probabilities, this means there is a higher chance of price breakage above $9,000 than below.In addition, since January 2019, volume has not only grown by 550 percent, it has also reached twice over $44 billion during the same period.

Bitcoin is growing up

Bitcoin appears to have gained new strength since early 2019, as new investors have begun to pour into the market.Although one can never be sure if different addresses belong to different people, I’m going to assume that there aren’t many people or businesses in one single address that own over 1,000 Bitcoins.

In that case the chart above is supposed to shock you.It shows that the number of addresses with more than 1,000 Bitcoin, which represents a whopping $9,300,000 at the current price, has greatly increased.Around 600 addresses with over 1,000 BTCs were created – or funded to be precise – from late 2019 until today.Can we presume that institutional investors bet heavily on the king of cryptocurrencies, and VCs?

If new players are the first ingredient of a Bitcoin bubble, the second is the sudden reduction in supply.This event is usually referred to as the \”Bitcoin halving,\” and it represents the date the block rewards of Bitcoin are halved at.

By May 2020, Bitcoin miners will start receiving BTC 6.25 per mined block, rather than the current BTC 12.5.If around 1,800 BTC are mined today per day, we should see about 900 BTC being mined on average every day after the supply cut.

What’s going to happen with the price of Bitcoin in USD terms? Even though I can’t predict the future, I can imagine that there will be extra pressure to raise prices. After all, it will cut the profits of the miners in half.

According to the graph above, courtesy of @100trillionUSD, the price action of BTC has gone through the roof a few months after every halving event.At the same time, past history does not determine future price and there might not be the same \”anticipated\” bull run.

In conclusion, Bitcoin bubbles are formed when new people enter the market that is driven by miners selling at higher prices to keep profits going.


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