Bitcoin crossed $4,000 on Saturday, on its way to hitting an all-time high of $4,135.
It's now time for some perspective.
While the first stocks originated in the early 1600s, speculation goes back to biblical times. The current mania in this price and time window is not a stock, however. It's the currency, well cryptocurrency, known as bitcoin.
Not since the Great Tulip Mania in Holland, which ended in 1637, crashed 99% has there been such a blood bath. The stock market crash of 1929-1932 in the U.S. took 90% off the Dow Jones, a worthy rival of manic proportions. More recently, the Nikkei's crash from 1989 to 2008 took 82%, but over nearly two decades. And no slouches, the various domestic indices that got their clocks cleaned from 2000 to 2002 maxed out around the Nasdaq's 82%.
Yet, the greatest mania of not only our lifetime, but also perhaps of all time is that of bitcoin. Since being born in 2009, for around $0.005 (or a half of a cent), bitcoin has gained massive popularity in the last three years, and manic popularity in the last three months, after its price exploded through the late 2013 price peak. That "surprise peak" and near-90%, year-long crash was linked to the collapse of the Mt. Gox exchange.
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Our DSE (decision support engine) picked up the wild volatility that few could explain, and after a few months of analysis, formed our first public forecast in June 2015 with prices in the low $200s. The bottom line from that analysis stated in these pages:
"In the meantime, breakouts above the March reversal point of $300 will hint that the lows of the contracting pattern off the parabolic highs of late 2013 are in place. Breaking above the November 2014 reversal point of $449 will increase the odds, as well. Then, only the March 2014 reversal high near $700 will stand in the way of a run on $990 and even higher prices."
As history shows, this is exactly what happened. Members of our Trading Room and DSE Alerts services (both of which you can trial for 10 days by clicking here) received real-time updates on every high-confidence buy-and-sell opportunity, in between our public analyses, the last of which was posted here in late May.
Reviewing that update of the great flameout of bitcoin, the DSE identified that spike into the upper $2,000s as the likely last gasps of wave 3. The second chart in that forecast zooms in on the first one, and details how a then-hallucinated decline should next hold the $1,750 +/- $150 zone, prior to the final rise into "perhaps the mid-to high $3,000s." Please take the time to read that forecast to alleviate any doubt that the DSE's forecasting engine is just ahead of this uber-emotional market.
The chart, above is the daily bar chart of bitcoin, with the current, highest probability ranked path that price could take, allowing red wave V of 5 to terminate between $3,450 and $3,500. Notice the declining volume bars in the last $500 of the rise above $2,900 -- a harbinger of exhaustion.
If there is any final hours to days of speculative mood left, price could spike up into the $3,800 +/-$300 zone. However, these extremes are not required, as the labeling below now counts as potentially mature, nor will any probing of that higher price band likely last long enough for most late-joining bulls to get their money out.
This is because the now-global infatuation (another telltale characteristic of N-stage manias) has overwhelmed the blockchain implementation (bitcoin's underlying technology), causing scalability problems, timeliness of executions issues and difficulty getting bitcoin delivered out of exchanges. Those that were around in 1987 might have little hairs on their necks reminding them what happened when liquidity evaporated in an instant. The Dow crashed 23% in a day.
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Some have likened the cryptocurrency market to the Internet sector in 1999. While there was little doubt then, and clear evidence since, that those companies would take over the planet, the two Nasdaq indices fell an average of 90% in the 30 months ending 2002. This time, the bitcoin mania, which has dwarfed even the Tulip Bulb lunacy, should become the posterchild graduate school case study for not only finance, but also psychology, sociology, and perhaps other disciplines. Ironically, for lacking discipline!
Friends don't let friends hold bitcoin below $2,900, the line in the sand of sell-stop protection. Otherwise, in the near future, one could be wishing they'd sold this $3,500 zone, as bitcoin breaks under $35, with growing potential for $3.50.
For updates on this analysis, as well as other trading opportunities, try Ken Goldberg's DSE Alerts service for free for a couple of weeks, or contact him at email@example.com
(This article originally appeared at 10:00 ET on Real Money, our premium site for active traders. Click here to get great columns like this from Ken Goldberg, Jim Cramer and other writers even earlier in the trading day.)
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At the time of publication Goldberg had positions in the securities mentioned.