Is the Ethereum (ETH)/Bitcoin (BTC) Cryptocurrency Bubble Bursting?
Disclaimer
There is a lot of talk in the Twittersphere about ETH (Ethereum) and BTC (Bitcoin) being in a bubble:
This isn't much of a surprise, many people were saying ETH and BTC were in a bubble 6 months ago. Interestingly, this same phenomenon happened just prior to the 2008 financial collapse and housing bubble burst. Google searches for "housing bubble" topped out two years before the bubble actually burst.
Shorts that pressed their luck, in either case, got their faces ripped off if they weren't applying sound risk management strategies and sticking to their trade plans. The bubbles just kept growing.
So the real question comes down to, how do I know when the bubble has actually popped? How do I know a big drop won't just get bought up and the bubble mania resumes to much higher prices, leaving me wallowing in FOMO? Well, that's the millio...billion dollar question.
To help answer that question, I find it useful to gauge both public sentiment and technical analysis. For the former, the CNBC poll above shows of 22k+ people polled, most think the cryptocoins are not in a bubble. Evidence of a bubble top gets clearer when everyone and their brother, regardless of their expertise, jump on the mania bandwagon:
For technical analysis, I find it best to go big picture, zoom out, and get an idea how far the mania has pushed up prices. The weekly charts posted above provide that crystal clear picture. How much have prices been pushed up? Here's the raw data:
ETH started 2017 at 8.20, it's 309.60 as I type this (up nearly 38x).
BTC started 2017 at 992.96, it's 4359.97 as I type this (up nearly 4.4x).
(data from Coinbase via TradingView)
Both cryptocurrencies are highly extended but ETH is particularly ominous. The long term weekly chart shows a clear double top chart pattern, which is bearish. In fact, this pattern gives shorts another reason to test their bets and longs an opportunity to get out, lock in profits, and reduce their risk of enduring a big collapse.
I'm currently looking for any opportunities to go long for big bounce plays. Even when bubbles pop, there are massive opportunities to play short term bounce plays for quick profits. It takes a clear trading edge, proper position sizing (preference for a smaller trade size), trading plan, discipline to stick to the plan, and a strong stomach!
I can't wait! But I have to wait because that is where my edge lies and my edge makes me money. My edge does not lie in trading all the time and trying to become a millionaire. My edge lies in being incremental, focusing on when the market wants to pay me, gladly accepting the payment, and leaving immediately after I've collected it.
I don't stick around with hopes of larger profits and greener pastures. I respect what I've been given and avoid trying to fight the market or will the market to do what I want it to do. I'm an observant and empathetic partner, not a demanding and oblivious boss.
What do you guys think, is the ETH/BTC bubble popping? Is there even a bubble? Let's talk about it below.
Jory
There is a lot of talk in the Twittersphere about ETH (Ethereum) and BTC (Bitcoin) being in a bubble:
POLL: Is bitcoin in a bubble or not?— CNBC's Fast Money (@CNBCFastMoney) September 6, 2017
In late May when Bitcoin was trading around $2,200 51% said it was a bubble and another 25% said it was overvalued. Today it's at $4,600. pic.twitter.com/LY0CYRkhE4— Charlie Bilello (@charliebilello) August 30, 2017
Bitcoin is a bubble, says Nobel Prize-winning economist who predicted the housing collapse https://t.co/cH6wQ2dxkQ— TIME (@TIME) September 7, 2017
TROUBLE? Price of #bitcoin mimicking the classic bubble pattern. https://t.co/EcwZQBFzt0 pic.twitter.com/PFQ8PFrMAQ— Holger Zschaepitz (@Schuldensuehner) September 8, 2017
This isn't much of a surprise, many people were saying ETH and BTC were in a bubble 6 months ago. Interestingly, this same phenomenon happened just prior to the 2008 financial collapse and housing bubble burst. Google searches for "housing bubble" topped out two years before the bubble actually burst.
Shorts that pressed their luck, in either case, got their faces ripped off if they weren't applying sound risk management strategies and sticking to their trade plans. The bubbles just kept growing.
So the real question comes down to, how do I know when the bubble has actually popped? How do I know a big drop won't just get bought up and the bubble mania resumes to much higher prices, leaving me wallowing in FOMO? Well, that's the millio...billion dollar question.
To help answer that question, I find it useful to gauge both public sentiment and technical analysis. For the former, the CNBC poll above shows of 22k+ people polled, most think the cryptocoins are not in a bubble. Evidence of a bubble top gets clearer when everyone and their brother, regardless of their expertise, jump on the mania bandwagon:
When celebrities, like Paris Hilton in this case, jump on the bandwagon, red flags start waving. And Brian Kelly knows it :)This can't be good ...for anyone https://t.co/6mC0tUiXsd— Brian Kelly (@BKBrianKelly) September 4, 2017
For technical analysis, I find it best to go big picture, zoom out, and get an idea how far the mania has pushed up prices. The weekly charts posted above provide that crystal clear picture. How much have prices been pushed up? Here's the raw data:
ETH started 2017 at 8.20, it's 309.60 as I type this (up nearly 38x).
BTC started 2017 at 992.96, it's 4359.97 as I type this (up nearly 4.4x).
(data from Coinbase via TradingView)
Both cryptocurrencies are highly extended but ETH is particularly ominous. The long term weekly chart shows a clear double top chart pattern, which is bearish. In fact, this pattern gives shorts another reason to test their bets and longs an opportunity to get out, lock in profits, and reduce their risk of enduring a big collapse.
I'm currently looking for any opportunities to go long for big bounce plays. Even when bubbles pop, there are massive opportunities to play short term bounce plays for quick profits. It takes a clear trading edge, proper position sizing (preference for a smaller trade size), trading plan, discipline to stick to the plan, and a strong stomach!
I can't wait! But I have to wait because that is where my edge lies and my edge makes me money. My edge does not lie in trading all the time and trying to become a millionaire. My edge lies in being incremental, focusing on when the market wants to pay me, gladly accepting the payment, and leaving immediately after I've collected it.
I don't stick around with hopes of larger profits and greener pastures. I respect what I've been given and avoid trying to fight the market or will the market to do what I want it to do. I'm an observant and empathetic partner, not a demanding and oblivious boss.
What do you guys think, is the ETH/BTC bubble popping? Is there even a bubble? Let's talk about it below.
Jory
