It really doesn’t take a genius to spot a bubble. It is about as simple as the Jeff Foxworthy “You might be a redneck…” logic.
When a price rises 430% in less than 4 months, you might (probably) have a bubble:
You can read about bitcoin here, but basically it is an electronic peer to peer currency that the believers feel will keep them away from the inflationary spiral of government controlled fiat currencies. I might consider 430% appreciation in 3 1/2 months a problem, but the believers would probably say that it is just indicative of the global destruction of all fiat currencies including the dollar. I would not defend any fiat currency, but I certainly cannot defend the bitcoin.
I try not to write about anything that might be construed as a trade recommendation, but there are times when I cannot help but call out what I feel is the obvious:
“I will not be participating in any of the upside in silver above $34 per ounce, but I feel just fine about this. I always believe that if something looks too good to be true it usually is and that it is better to get out before the top then to be the last person buying. At this level it almost seems certain that silver will at least test the $50 barrier set over 30 years ago. I will be one of the people looking for a retracement. Yes, fiat currencies are a sham….but nothing ever occurs in a straight line.”
Silver hit $50 and died from there.
I thank John Dvorak and Adam Curry from No Agenda for bringing up the beautiful analogy to “beanie babies” in the late ’90′s. All the craze, prices skyrocketed and the bubbling ridiculousness was illustrated well in the wall street journal:
“With Beanie Babies, that moment came for me in a chat with my supplier, who said that many customers were certain that these little stuffed animals would someday cover their children’s college education.”
To be honest, the most historic and talked about bubble in economic circles is more of a normal phenomenon in modern excesses. Tulip Mania of the 1600′s:
If I knew how to short the bitcoin, I would. The problem is that the inability to short probably has a lot to do with its lofty trajectory.