Continuing Bear Market for Crypto-Assets
In February 2018, ZettaCap published a 33-page report entitled Bitcoin Bubble Bursts, Historical Investment Bubbles Provide Roadmap. It stated, correctly, that bitcoin was in a financial bubble that had recently burst. At the time such a forecast was not a consensus view with many still discussing bitcoin increasing 10-fold within the foreseeable future. In contrast, prices of most crypto-assets are down anywhere from 50% to 75% from their respective highs — with bitcoin falling approximately 69%.
From the report:
Since their inceptions, bitcoin (BTC) and other crypto-assets have experienced phenomenal returns and have entered investment bubbles. Comparing BTC, the most liquid crypto-asset with the longest history, to historical investment bubbles shows that BTC’s pattern matches those of other bubbles but on a grander scale. And, its expected decline should be just as impressive.
Continuing from the report:
As for timing, it is always difficult to time a traded financial asset, let alone BTC which is one of the most volatile. So, obviously take extreme care in any attempt to time this market. Having said this, note that BTC hit its all-time high in December 2017 and other smaller alt-coins hit all-time highs in January and February 2018. Assuming the bubble scenario is correct, we are still extremely close to bubble price peaks in terms of days. The bear market in crypto-assets and more specifically in BTC appears to be in the early stages, still offering ample opportunity.
Having essentially called the high of likely the largest financial bubble in history to within about a month is impressive to say the least. Note as well that we don’t qualify under the permo-bear classification of those who consistently talk negatively about an asset as it appreciates and then declare victory once it eventually goes down. The February 2018 bubble call was our first negative forecast for bitcoin or for crypto-assets.
As this report more fully describes, a bubble bursting is not the end-of-the-world. In fact, it can be seen as a healthy, though difficult, period in the maturation of an asset class. Most every truly transformative financial asset has gone through at least one bubble. It would be difficult to paint these as ‘normal’, but if you consider the long-term development of society, they are just that and can even be expected to occur in innovative and growth-oriented societies. After bubbles have deflated, the business of healthy development returns.
Bubbles do not deflate within a half a year, however. Such deflationary periods tend to last for longer periods of time. The current deflationary period for bitcoin and for crypto-assets is extremely short as compared to other investment bubbles. If you believe that we are witnessing the deflation of an investment bubble, it is best to wait for the time being — at least until the deflationary period begins to match those of other bubble bursts.