Compared with many historical bubbles – is Bitcoin really bottoming out?
Just four months ago, Bitcoin seemed to be on the verge of collapse as investors continued to flee. But after a sharp rebound in the past week, more and more market observers have raised the same question: Is Bitcoin really bottoming out?
The loyalty of the cryptocurrency thinks the answer is yes. They think that the rebound of Bitcoin from a low of about $3,400 in 2018 to $5,259 today is the beginning of a new round of bull market. Bearish investors retort that no change in the digital currency has made it more attractive to Wall Street.
Bitcoin vs. some other bubbles
Given the large volatility in the encryption market and the lack of reliable valuation indicators, predicting bitcoin price changes can only be an inaccurate science. However, if we revisit some of the historical bubbles – from the soaring Japanese stock market in the late 1980s to the rise in housing prices in Miami in 2006, we might be able to see from a comparison that the bitcoin bubble burst is not the case. It is worth optimistic.
The chart and table above show the duration and severity of the bitcoin bubble burst compared to previous speculative activities. Some points:
Bitcoin’s 84% decline from the peak of history to the lowest point is more serious than the losses of the NASDAQ bubble in 2000, the collapse in oil prices in 2008, and other market bubble bursts. However, the 84% decline in Bitcoin is still not as good as the decline in the Dow Jones Industrial Average during the Great Depression of 1929 (89%).
· The five-year growth rate of Bitcoin at its peak is the highest in the sample, with a growth of more than 140,000% in 5 years (2013-2017)
· The 12-month depression of Bitcoin lasts relatively short. The bursting of the US stock market and the Miami housing bubble has lasted for 34 months and 52 months.
· If Bitcoin really bottomed out, history suggests it may have further upside. The Nasdaq index more than doubled in the five years after the bubble burst, and has since reached a record high, well above the peak in the Internet bubble.
· For those who believe Bitcoin has touched the long-term bottom, the Japanese stock market is a warning. After the stock market bubble burst in several Asian countries in 1989, the Nikkei index experienced a series of rebounds, but ended with a new low. This cycle persisted during the global financial crisis of 2009.