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RE: A Look at Past Bitcoin Bubbles -- What Price to Expect Next?

in #bitcoin7 years ago

Actually, note it might not necessarily take a lot of capital to push the price up again significantly.

The mental trick that market price analysis does with us is to make us assume that all bitcoins need to be bought from a given (limited) pool of capital - if someone kickstarts a new bull run, once the new mania catches then the price can go up by a "virtuous circle" (people buy because they think it will go up which makes the price go up which confirms what people believed which makes more people become convinced that it will go up and so on ...).

In practice, that means that the price movement itself "feeds back" and (indirectly, through its action on human psychology) leads to an increase in the capital pool dedicated to ... maintaining the price movement. That is the nature of bubbles ...

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Good points, @sorin.cristescu.

A market bubble is really just a synonymous term for "buying craze", after all. Excitement tends to attract more excitement (from other people), whether we consider fans in a stand at some sporting arena or children singing "happy birthday" around a cake or participants of the (stock) market or ________ (name any "event" where people come together to share in some type of activity). Like you said, on the market side this translates into a self-feeding loop of positive expectations that attracts the next buying wave(s) and quickly snowballs into the parabolic moves that are the hallmark of bubbles.