A Look at the Similarities between Bitcoin & Established Markets
//Insert generic Bitcoin intro talking about meteoric rises, media hype and bubbles here :)
Joking aside, another relevant Bitcoin cliche is that it is an outsider that somehow doesn’t fit into the mold of established markets like metals and indices. Often people will say that there is no correlation or they just point to the price and say tulips…
Interestingly though there are apparent similarities in terms of chart fractals between Bitcoin and the various established markets that I would like to discuss here. Let’s start with possibly the oldest market in the world…
Gold
Bitcoin is digital gold! That’s another one…
At first sight it is not necessarily obvious that gold and Bitcoin have much in common. But taking a step back and looking at the long-term history of the two markets (here I’m using the London benchmark starting in ‘68) reveals that the development of the new digital gold is much the same as the older, legacy format. We see that Bitcoin’s second growth phase (II) and the 2014 bear market are very similar to gold from 1968 — 2000.
Silver
Now let’s turn to another ancient market.
With a little bit more imagination (read delusion), you might also convince yourself that there are similarities between the 1979 silver bubble and Bitcoin’s 2017 bubble.
Thanks to my ability to see only what I want to, I would say that these two markets look incredibly similar. Luckily there are sane people to remind me the silver price is being manipulated by a certain investment bank and that any similarity here is purely coincidental. Oh and tulips, lest we forget…
But wait…
…what about the stock market? “There is no correlation between the stock market and Bitcoin.” Tulips…
Well, except that since the start of Bitcoin trading, both it and the S&P500 (as well as e.g. Nasdaq) have been following the same S-curve more or less.
The noticeable differences being Bitcoin’s bubble formations in 2012 and 2013. Interestingly the 2017 bubble (most often linked to media hype and retail investors) corresponds nicely with the S&P’s development. Indeed the period from 2016 onward is very similar, when we smooth out the wrinkles. Could it be that Bitcoin’s mean is in fact an S-curve?
In fact, let’s take a closer look at the current market correction. We can see that up to May, there were also some interesting similarities between the two, even on the daily time frame.
2 + 2 = 5
So I’m not saying that any of this has any real significance. And if it does, I’m not sure what it might be. There are, at the very least, superficial similarities between these markets. One thing they all do have in common is of course that they experience bubbles. Could it be that there exists, for whatever reason, a set of standard bubbles?
Another point of interest is the apparent S-curve in the stock chart. To me it makes sense to think of Bitcoin as painting consecutive S-curves, as others have pointed out, due to the fact that technology adoption, which is based on the spread of information, largely follows a logistic function. Could it be that the 2014 bear market was simply a return to the S-curve after a brief period of rampant volatility? And do we now really need another prolonged bear market given the fact that we do not seem to have strayed from the curve? In fact, are we about to start another S-curve here? All questions I can’t answer.
Just on a side note, the most amazing thing about the Bitcoin market for me is not the price, but the speed at which it develops. What takes years to unfold on these metal markets, takes sometimes just weeks with Bitcoin. Given the relatively low volume of Bitcoin transactions, there has to be more to this than just 24-hour trading.