Did we learn nothing from the tech bubble?
The real estate bubble?
The energy bubble?
Apparently not, as here we go again. The next series of bubbles is now in progress (Bitcoin is the first).
Let me go over again the signs of a bubble. Price will usually rally at least 100% or more in a year or less. A clear sign of out of control human emotions.
Price will stretch 40, 50, or even 100%+ above the long term mean (200 day moving average).
Investors will start to rationalize reasons for why this rise in price is justified. In 2000 investors convinced themselves that earnings didnít matter. All that mattered was how many eyeballs your website was attracting.
In 2006 investors convinced themselves that we were running out of available land in the world and skyrocketing real estate prices were justified. Apparently none of these people had bothered to take a look at the Mohave Desert. Land as far as the eye can see.
In 2008 investors convinced themselves that we had reached peak oil, even though we had tankers sitting in the Gulf of Mexico unable to unload their oil because all of the storage facilities were full.
Investors have now convinced themselves that the ability to counterfeit their own currency really is a viable strategy to get rich.
And finally towards the end of a bubble you will get a massive insurgence of copycats trying to piggyback on the mania. During the final few months in 2000 there were literally thousands of websites coming online, none of which ever had even the remotest chance of making a dime. Here is a list of current Crypto currencies as more and more people try to piggyback on the mania. Again, classic behavior as a bubble nears its top.
There is no barrier to entry in the cryptocurrency market and there is no fundamental difference between Bitcoin at $8,000 and bytecoin at less than a penny. Itís not like one has a superior business model and produces a more desirable product. In fact the inevitable massive dilution of the cryptocurrency market virtually guarantees that price will eventually go to zero.
Iíve said this before, and Iíll say it again: Human nature never changes.
At the very beginning of a bubble almost no one believes. The very few with the foresight to see what is coming are laughed at and branded as extremists. For almost a year now Iíve been telling investors that once the NASDAQ composite broke out above the 2000 highs we would see an aggressive rally and 10,000 would be a piece of cake, 20,000 wouldnít be completely out of the question once we get into the nutty phase of the bubble. Most everyone laughed at me then, and many continue to laugh at me now even though the NASDAQ is doing exactly what I said it would do, itís already almost halfway to 10,000 from the breakout above 5000.
Four years ago I couldíve made that same statement about bitcoin. When bitcoin was under $1000 I couldíve predicted that we would see price go above $8000. I guarantee at the time everyone wouldíve laughed at me, and thought I was insane. Now however, as price has continue to rise sentiment has swung 180į in the other direction, and no one can see any possible scenario where price could collapse. But I guarantee you price will collapse. Every parabolic move in history ends this way. This time is not going to be different.
Letís face it, anyone with a shred of common sense left can see that crypto currencies are a Ponzi scheme. Getting rich simply isnít as easy as creating your own currency out of thin air and then watching as gullible investors bid the price up. That is a perfect example of the Greater Fool theory in action.
The sad fact is most of the fools jump into a bubble towards the very end and then get caught when the market collapses.
You need to ask yourself:
Did you get caught in the tech bubble?
Did you get caught in the real estate bubble?
Did you get caught in the energy bubble?
If you answered yes to these three questions, and you are now buying bitcoin after itís already rallied 700% in the last year, then you my friend are the Greater Fool. You are unable to learn from past mistakes. You are one of the sheep that drive bubbles. You buy too late, and you hold too long.
The time to get into a market is before the parabolic phase begins, not after itís already rallied 700%. I donít believe bitcoin is going to be the only bubble. We are going to have a bubble in the stock market, and I expect we will probably have a bubble in the gold market after that.
Many, many Greater Fools are now piling into the bitcoin market.
Those very few that can still think logically recognize that itís too late to jump into the bitcoin bubble. Those with foresight can see the next bubble is just now beginning in the stock market. If you want to ride a bubble you need to get in early. Iíve posted the Robo ratio a couple of times in past articles. It is one of the best, if not the best single sentiment tool to judge complacency in retail investors. The Robo ratio still isnít even vaguely close to conditions that exist at final bull market tops, much less at a bubble top.