Bitcoin: How Much Pain Before Fear Sets In?

Bitcoin is going through the customary pullback in the price.  The new threshold to watch for is –35.77% on the downside.  This was the amount of loss that speculators and investors were willing to accept from the June 11, 2017 high of $3,018.55 to the July 16, 2017 low of $1,938.94 before a new bull run to the upside ensued.  Most traditionalist say that a bear market starts at or near a decline of –20% or more.  At which point, it takes some time before the “investment” gets back to the previous high (example: Nasdaq Composite took 15 years to get back to the 2000 high). 

In this case, we’re not talking about a stodgy technology stock index, we’re talking about a potentially new currency mechanism which will likely supplant many existing currencies.  Bitcoin is only one among many competing to be the final choice of a new money.  However, in order to get that prize, Bitcoin will need to survive the high risk phase of speculative boom and bust.

Right now, we’re watching Bitcoin investors test their tolerance for pain as the price swoons from the high of $4,950.72, as report by Coindesk.com, to the current level of $3,390.  As we said in our August 21, 2017 posting:

“…participants will accept even larger declines if the expectation is that it will exceed the prior peak.  So far, Bitcoin participants accepted a –14.94% decline followed by a –35.76%.  In each instance, these declines were followed by new highs in the price of Bitcoin. By our rationale, Bitcoin will now fall as much as –35% and possibly more as participants become inured to the pain of loss in anticipation of new highs.”

You have to imagine that Bitcoin participants aren’t fools about the prospects for the future.  Our only concern is that Bitcoin might be in the position of Napster in file sharing of music,  the industry (record labels:central banks) will fight to shut it down while competitors (Apple:JPMorgan) will succeed in promoting exactly the same technology with more name recognition and “better” security features.

Meanwhile, we’re watching the $3,179.85 level in Bitcoin to see if participants are willing to accept even more pain before the bottom falls out and achieves the historical average (found here) decline –70% or more.  Alternatively, will enough new buyers buoy Bitcoin for another run at the old high?

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