Excerpted from the April 2013 Elliott Wave Financial Forecast
by Elliott Prechter (April 5, 2013)
There is one unmitigated mania remaining. It is in Bitcoin, the world’s first successful digital currency. EWI first wrote up Bitcoin during its humble beginnings. The September 2010 issue of The Elliott Wave Theorist covered the new currency when 1 BTC was worth 6.5 cents. It turned out to be a great time to discuss it because with Bitcoins now trading at $137 (Bitcoinprices.com), a $1,000 investment at that time would be worth over $1.6 million. Bitcoin’s upward spikes, however, have coincided closely with those of other “risk-on” assets. Thus, the timing of the recent exponential rise shown on the chart is not surprising, as it coincides with the final speculative fling in the S&P. The bullish psychology of Bitcoin investors is at least at equally manic levels. Many enthusiasts on Bitcointalk.org are taking out loans and/or liquidating their IRAs to buy Bitcoins. Venturebeat.com recently reported that one person even sold a $395,000 house to invest in Bitcoin:
A 22-year-old currency trader is selling his grandparents’ house for as many Bitcoins as he can get his hands on. [He] put the listing up for the family home in Alberta, Canada, several days ago.
Meanwhile, Bitcoin pundits are claiming that the price will eclipse a million dollars per coin. The new buzz-phrase going around the Bitcoin community is that “the singularity is here,” implying that Bitcoin is on a rapid path to becoming the new world currency. The sobering economic reality, at least for the time being, is that Bitcoin’s potential cannot quickly satisfy investors’ euphoric expectations. Bitcoin’s current technology is not capable of anything even close to Visa-level transaction traffic.
Because fiat paper currencies are ultimately doomed, EWT argued in 2010 that Bitcoin and its revolutionary properties are here to stay. Events like the confiscation of bank accounts in Cyprus illustrate the need for an unsulliable currency such as Bitcoin, but a significant correction in Bitcoin’s price is highly probable. The BTC bubble is clearly entwined in the “all the same market” top of a Grand Supercycle, and the near-vertical rise of recent days and weeks indicates that a price decline is likely to be deep. Nevertheless, Bitcoin is invulnerable to government-run printing presses. Long term, this facet should prove beneficial to Bitcoin’s ultimate success despite near-term risks.
Bitcoin Bust
Five days after the release of this article, Bitcoin crashed 61% over 2 days:
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