Bitcoin Bubble Set to Burst

Brad Hoppman

After giving investors the chance for $150,000 gains, the crypto-currency is now setting the stage for a vicious whipsaw …

The biggest winner in the aftermath of the Cyprus debacle wasn’t the government, which secured its bailout from Brussels after all.

No, instead it was an alternative currency called Bitcoin.

Well, that’s not quite fair. After all, the news media was by far the biggest winner. The ad revenue it banked on the Cypriot catastrophe was probably enough to bail out the island nation all on its own.

But a close second definitely goes to Bitcoin — the esoteric virtual currency that’s had precious-metals investors abuzz over the last few weeks.

Spectators and commentators alike are wondering whether it might be the currency of the future. They’re telling stories of panicked Cypriots who — instead of stuffing cash in the mattress — started buying Bitcoins hand-over-fist.

They’re telling stories about how Bitcoin’s status as an electronic crypto-currency means that it can never be confiscated … that it’d be nearly impossible to hack, and that it may be the next generation’s answer to corrupt government currencies.

All of which makes for great airtime when you’re on a 24-hour news cycle. But at the end of the day, the question still remains:

Is Bitcoin really any good for your portfolio?

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The long answer is a complicated one, but the short answer is easy — no.

Bitcoins are absolutely not a good thing to add to your portfolio, at least not at this very moment. And here’s why …

You have to remember that currencies are essentially investments. If you’re diversifying into a specific currency — like euros or Bitcoins or gold — then you’re doing it because you believe that currency will go up in value relative to others.

And while Bitcoin has made some truly impressive gains since the beginning of the year, we’re starting to wonder whether Bitcoin (as an investment) is nearing that classic “bubble” territory we all know too well.

Just take a look at this chart from renowned economist Dr. Jean-Paul Rodrigue:

In this chart, the red line represents the classic investment bubble. It doesn’t matter whether we’re talking tulips or mortgages or Beanie Babies; this is generally the shape of things from phase to phase.

That’s the red line. Now look a bit closer … see the thin black line that’s overlaid? That’s the price of Bitcoins since January — mimicking the classic lead-up to a bubble.

What’s more, there’s a good chance that this bubble is starting to reach its final phases …

Because over the last 48 hours alone, Bitcoins have surged a full 50%—from $94 all the way up to $141!

Just take a look at the chart of Bitcoin performance since February:

This is a truly massive gain on unprecedented volume (with upward of 12 million coins trading in a single day), and we don’t think it’s a very good thing for Bitcoin.

Including this parabolic gain, Bitcoin is up nearly 1,400% this year — or enough to turn $10,000 into $140,000 over the last three months.

That’s just not sustainable.

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So if you’re currently looking at any Bitcoin positions, it might be best to hold off and see how this plays out. If you’re already holding, it might be time to pare down … get a head-start on the classic “sell in May and go away” crowd.

Because while Bitcoin has been one of the best-performing investments of 2013 so far — and while it could be a great way to diversify in the longer term … this bubble is reaching critical mass.

We’re not surprised that Bitcoin has seen such a surge in recent months. Heck, long-term it really has merit as an investment … for the “funny money” part of your portfolio, anyway.

Bitcoin may go up a bit more before the bubble bursts and investors looking for a get-rich-quick investment get blown out. But when it comes to your serious investing dollars, you want to turn them into something that’s instantly (and actually) valuable like gold, silver, palladium and other precious metals that represent a real store of wealth.

Your thoughts on “Bitcoin Bubble Set to Burst”

  1. I have no more faith in bitcoin than I do in paper money
    According to Wikipedia there have been several incidences of covert bitcoin mining – essentially the same as the US Federal Reserve’s money printing via quantitative easing
    Give me something I can hold in my hand that no man can create out of thin air
    I don’t trust any of them!

  2. Traditionally, this modicum is exuded to frame the markets via passionate behavior to considerably permeate the bullish approach to funnel the index to myriad various price indexes that promulgate bullish applications denoting bullish behavior in reference to gold price indexes. Good for gold!

  3. This is rubbish, the person writing this has no idea how and who is using bitcoin, there is a lot of black money which will be laundered through bitcoin. As the summer approaches and the music festival scene is upon us, certain recreations can only be purchased via bitcoin, and i can only see the demand going up. 1BC bought at market value can within minutes be sold on ebay for a £10 premium. Why the premium? Only bacuse you accept paypal……. do you get it !!!

  4. The chart included has a y-axis denominated in USD – the quoted 12 million bitcoins traded figure is $USD value rather than number of bitcoins traded in a day. There are only 11 million bitcoins in circulation and only a very small fraction change hands each day.

  5. this is all rubbish, the facts put forward in this dribble are based on existing currencies, bitcoin is nothing like that….the amount of misinformation out there is mind boggling.

  6. You left out that the private sector is paying the hole nut , I spell it right . If all the people in a town work for the same town ,how do you pay them ? IF WE HAVE TO PAID OR BACK THERE . P.E.R.S. Do they have to pay back all of the money to S.S. I REST MY CASE, SO LITTLE OF TIME WE FORGET THAT IS YOU.

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