Did the Bitcoin bubble pop? Are you still in "Denial"? Most likely you are past that because the market is in "Fear". And soon to be in "Capitulation" or the willingness to stop trying to resist the drop. And then "Despair" and THEN Bitcoin's bubble will officially be over.

This all academic jargon to describe the various pieces of a bubble's life-cycle.

Will your Bitcoin survive the bubble?

Yes.

It will.

At least at a very different valuation.

Just give it some time. If you are currently invested AND if you keep your investment you'll most likely see returns another day... but certainly not today.

We are currently in "The Blow Off Phase" of Bitcoin and The Total Market Capitalization (Excluding Bitcoin) for that matter. Check it out --

Here is an academic chart taken from The Geography of Transport systems:

And here is a BTC chart taken from Coin Market Cap (as of today):

This is the Total Market Capitalization excluding BTC taken from Coin Market Cap:

And here is the markup of both charts based on the academic model of The Stages of a Bubble:

If you ask me. This most certainly looks like the academic model of a bubble. Pretty wild!

Here are the descriptions of each phase taken from the Dept of Global Studies at Hofstra University's Geo Trans website at https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/stages_in_a_bubble.html

Stages in a Bubble

Business cycles are a well understood concept commonly linked with technological innovations, which are often triggering a phase of investment and new opportunities in terms of market and employment. The outcome is economic expansion and as the technology matures and markets become saturated, expansion slows down. A phase of recession is then a likely possibility as a correction is required to clear the excess investment or capacity that irremediably occur in the later stages of an economic cycle. The bottom line is that recessions are a normal condition to a market economy as they are regulating any excess, bankrupting the weakest players or those with the highest leverage. However, one of the mandates of central banking is to fight a process (business cycles) that occurs "naturally". The interference of central banks such as the Federal Reserve appear to be exaggerating the amplitude of bubbles and the manias that fuel them. It could be argued that business cycles are being replaced by phases of booms and busts, which are still displaying a cyclic behavior, but subject to much more volatility. Although manias and bubbles have taken place many times before in history under very specific circumstances (Tulip Mania, South Sea Company, Mississippi Company, etc.), central banks appear to make matters worst by providing too much credit and being unable or unwilling to stop the process with things are getting out of control (massive borrowing). Instead of economic stability regulated by market forces, monetary intervention creates long term instability for the sake of short term stability.

Bubbles (financial manias) unfold in several stages, an observation which backed up by 500 years of economic history. Each mania is obviously different, but there are always similarities; simplistically four phases can be identified:

1. Stealth

Those who understand the new fundamentals realize an emerging opportunity for substantial future appreciation, but at a risk since their assumptions are so far unproven. So the "smart money" gets invested in the asset class, often quietly and cautiously. This category of investor tends to have better access to information and a higher capacity to understand the wider economic context that would trigger asset inflation. Prices gradually increase, but often completely unnoticed by the general population. Larger and larger positions are established as the smart money start to better understand that the fundamentals are well grounded and that this asset class is likely to experience significant future valuations.

2. Awareness

Many investors start to notice the momentum, bringing additional money in and pushing prices higher. There can be a short-lived sell off phase taking place as a few investors cash in their first profits (there could also be several sell off phases, each beginning at an higher level than the previous one). The smart money takes this opportunity to reinforce its existing positions. In the later stages of this phase the media starts to notice with positive reports about how this new boom benefits the economy by "creating" wealth; those getting in becoming increasingly "unsophisticated".

3. Mania

Everyone is noticing that prices are going up and the public jumps in for this "investment opportunity of a lifetime". The expectations about future appreciation becomes a "no brainer" and a linear inference mentality sets in; future prices are an extrapolation of past price appreciation, which of course goes against any conventional wisdom. This phase is however not about logic, but a lot about psychology. Floods of money come in creating even greater expectations and pushing prices to stratospheric levels. The higher the price, the more investments pour in. Fairly unnoticed from the general public caught in this new frenzy, the smart money as well as many institutional investors are quietly pulling out and selling their assets. Unbiased opinion about the fundamentals becomes increasingly difficult to find as many players are heavily invested and have every interest to keep asset inflation going. The market gradually becomes more exuberant as "paper fortunes" are made from regular "investors" and greed sets in. Everyone tries to jump in and new intrants have absolutely no understanding of the market, its dynamic and fundamentals. Prices are simply bid up with all financial means possible, particularly leverage and debt. If the bubble is linked with lax sources of credit, then it will endure far longer than many observers would expect, therefore discrediting many rational assessments that the situation is unsustainable. At some point statements are made about entirely new fundamentals implying that a "permanent high plateau" has been reached to justify future price increases; the bubble is about to collapse.

4. Blow-off

A moment of epiphany (a trigger) arrives and everyone roughly at the same time realize that the situation has changed. Confidence and expectations encounter a paradigm shift, not without a phase of denial where many try to reassure the public that this is just a temporary setback. Some are fooled, but not for long. Many try to unload their assets, but takers are few; everyone is expecting further price declines. The house of cards collapses under its own weight and late comers (commonly the general public) are left holding depreciating assets while the smart money has pulled out a long time ago. Prices plummet at a rate much faster than the one that inflated the bubble. Many over-leveraged asset owners go bankrupt, triggering additional waves of sales. There is even the possibility that the valuation undershoots the long term mean, implying a significant buying opportunity. However, the general public at this point considers this sector as "the worst possible investment one can make". This is the time when the smart money starts acquiring assets at low prices.

Bubbles can be very damaging, especially for those who arrived late with the hope of getting something for nothing. Even if they are inflationary events, the outcome of a bubble's blow off is very deflationary as large quantities of capital vanish in the wave of bankruptcies and financial defaults they trigger. Historically, they tended to be far in-between, but between 1995 and 2008 three bubbles took place back-to-back; the stock market (deflated in 2000), real estate (deflated in 2006) and commodities (deflated in 2008).

All-in-all, I find this fascinating. Until seeing this chart, I frankly didn't know what the heck was going on with my investment. But then it hit me ... I fell in the "Bull Trap". That's actually precisely when I started really investing in Bitcoin. I thought I was buying on a dip. But I wasn't I was buying after "Delusion" set in and I exclaimed that there was a "New Paradigm" ... funny how a little academic model can help you see a bit more clearly and help you choose better language than "buying on a dip".

Let's take one last look at the academic chart comparison to the actual real world charts:

Absolutely fascinating!

Disclaimer

And now for the silly little journalistic disclaimer at the end of articles that have anything to do with investing....

I am not a real investor. I am not an expert. You cannot even put me in the category of someone who is sophisticated, using "Smart Money" to make investments early on. All that you see is not advice in any way shape or form. BUT I do own some Bitcoin... that certainly lost value.. a lot. I bought in during the "Denial", "Bull &$!#" (ahem ... "Bull Trap"), and "Return to 'normal'" points on the charts in this post. Oops. >.<