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Bitcoin Mania!

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:

March 24th when Silver was at $37 I stated:

“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.

 

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4 Responses

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  1. Tweet says

    Not sure I’d say it was a tulip or a beanie baby. You can directly purchase goods online with a bitcoin whereas there was nowhere that publicly accepted beanie babies as a means of direct payment. Not that I think it’ll continue on forever or anything.

    Then again, I’d rather not do your analysis for you.

  2. Mat says

    This resembles the ostrich bubble in the 1980s and the alpaca bubble in the early 90s. You can’t hold the price high on an animal that can breed. If you look at how much an oz of prime baby fine alpaca wool goes for now, it is hard to pay for upkeep on your alpaca livestock with that margin. At $2/oz, you realize a loss no matter how efficient you run your operation.

Continuing the Discussion

  1. Friday links: terrible investors - Abnormal Returns | Abnormal Returns linked to this post on March 22, 2013

    [...] A look at the Bitcoin mania.  (SurlyTrader) [...]

  2. Beanie Babies Vs Bitcoins | SurlyTrader linked to this post on December 5, 2013

    [...] comparison between Bitcoins and Beanie Babies has already been made.  My question to you is how bad do you think it could possible [...]



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