Boom, bust - what's next for bitcoin?

It seems a long time ago now, but at the start of 2021, bitcoin was at $29,000.

In my annual forecasts piece, my outlook was that:

“Bitcoin goes north of $50,000... But 2021 also sees one of bitcoin’s triennial, monster 50%+ corrections.”

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The first target – $50,000 – was hit by February. The second – the triennial, monster 50%+ correction – by May.

So what’s next?

Bitcoin moves fast, but an overall pattern to its cycles is becoming clear

Such is the speed at which this space moves, what gold does in a decade, bitcoin does in a couple of months.

And when I started out as an investor, people said gold was volatile. It looks positively docile in comparison.

So where is bitcoin now in the grand scheme of things?

The digital asset seems to go through four obvious phases in a cycle.

1. It creeps up quietly. Few outside of the bubble of ardent bitcoiners take notice. We’ll call this the quiet accumulation phase.
2. Those quiet steps up get noisy as the price starts moving up quickly. There is a rush to buy. The media is all over it. There’s a huge row about whether bitcoin is in a bubble or not. I get invited onto the BBC to talk about it. Bitcoin has one of its blow-off tops.
3. We get a monster correction and bitcoin loses over 50% of its value. Nocoiners all go on telly and declare they were right, ignoring the fact that the price to which bitcoin corrected to is several hundred percent above where the quiet accumulation phase began. Earlier in bitcoin’s evolution these corrections could be 90% or more. Now they have “scaled back” to more like 60%.
4. Bitcoin goes into a period of range trading, consolidating the gains of the previous bull market. This is a period of relative quiet, at least by bitcoin standards. There are rallies that get many excited, but prove to be false dawns. Investors get frustrated by the grinding action. The media loses interest. Many forget about it, and so we gradually drift into another quiet accumulation phase.

Let’s give those phases some titles: The Quiet Accumulation; The Frenzy and Blow-Off Top; The Monster Correction; The Frustrating Consolidation.

Now let’s consider bitcoin’s price action over the last few years in the context of this cycle.

Where are we now in the bitcoin cycle?

We’ll start with the bubble that ended at the end of 2017 with the Frenzy and Blow-Off top. The Monster Correction followed and the price collapsed 85% to the $3,000 area. We were then in The Frustrating Consolidation.

The key thing to note about Frustrating Consolidations is that they are frustrating. Forget rule of law, this is rule of Sod’s Law. Whatever outcome is the most frustrating will be the outcome, chief among them being the fact that this period of frustrating consolidation will go on for much longer than anyone really wants, especially those hoping for fast gains.

In this instance the Frustrating Consolidation lasted almost two years – from early 2018 with bitcoin around $5,500, through to March 2020 with bitcoin at $3,000. There were rallies along the way. At one point bitcoin went to $13,000, but it also went as low at $3,000 – twice.

We got two Quiet Accumulation phases – the months around the turn of 2019 with bitcoin around $3,000. And then a textbook quiet accumulation amidst the Corona panic of spring 2020 – from March through to July.

In around October, we transitioned from Quiet Accumulation to Frenzy and Blow-Off Top. That’s when bitcoin launched. $64,000 was the peak of the blow-off.

Then in April of this year our Monster Correction kicked in and the price more than halved.

And guess where we are now? Yup. Frustrating Consolidation.

We have seen bitcoin retest the $29-30,000 area several times. There would seem to be support there. Those nocoiners who declared it a bubble that will go nowhere, are all congratulating themselves. “Look, bitcoin has had a 55% correction,” they are saying.

They’re also ignoring the fact that bitcoin is bottoming at $30,000 which is ten times higher than where it bottomed in the previous cycle.

Now bitcoin has had a bit of a rally to $50,000. It’s looking good.

The bears have gone quiet. The bulls are all saying we’re going to $100,000. Heck, why not, it’s going to a million dollars!

Remember the golden rule of Frustrating Consolidations. If it can frustrate it will frustrate. The Rule of Sod is at play.

This rally to $50,000 might be the real deal. I suspect not, however.

You have to own some bitcoin. Its potential is too great not to have some exposure. The risk is not owning it. I’ve said that many times.

But such is the nature of Frustrating Consolidations I don’t think we are going to the moon just yet.

This is one of those Money Mornings where I’ll be glad to be wrong. But I rather suspect we have many more months of grind, before the next Quiet Accumulation and Frenzy and Blow-Off Top.

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.