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Home Cryptocurrency news Bitcoin

Former IMF Economist: Current Bitcoin Trend is “Textbook Echo Bubble”

Tony Spilotro by Tony Spilotro
1 year ago
in Bitcoin, Cryptocurrency news
Reading Time: 3min read
bitcoin crypto echo bubble mark dow
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Bitcoin’s entire 2019 rally from trough to peak, is nothing more than a “textbook echo bubble” according to a former IMF economist.

If the well-known economist is correct, knowing this fact could provide some clues about what happens next for the first-ever cryptocurrency.

Bitcoin Forms Textbook Echo Bubble, According to Mark Dow

After Bitcoin bottomed out late last year, the crypto asset spent the first quarter of the year stagnant, but as soon as the second quarter hit, the first-ever cryptocurrency went on a parabolic rally reminiscent of the highly-publicized crypto hype bubble.

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Related Reading | $20K Day: A Look Back At Bitcoin’s Two-Year Rise and Fall

Occasionally in financial markets, after a powerful bubble pops, a post-bubble rally can occur that’s called an echo-bubble, given the structural similarity to the initial primary bubble phase. And that’s exactly what has happened with Bitcoin and its most recent rally, according to former IMF economist Mark Dow.

Textbook echo-bubble. Sorry, @pierre_rochard #bitcoin $XBT $BTC pic.twitter.com/Z4vR6IuESp

— Dow (@mark_dow) December 16, 2019

Dow famously shorted Bitcoin’s initial bubble pop, earning him a fortune and a reputation for calling tops and bottoms in the crypto asset.

Just like Bitcoin’s first major bubble, the echo-bubble also popped and is currently in the process of deflating – just as the first bubble did.

Bitcoin’s price reached $20,000 just two years ago today, and after that peak, the crypto asset spent the entire year of 2018 ping-ponging between peak and trough, until it ultimately reached a bear market low of $3,100.

Echo Bubble Performance Suggests Bottom is Near for BTC

According to Investopedia, echo bubbles in financial markets are often less inflated than the initial primary bubble, which causes it to leave less damage behind after it bursts.

The first crypto bubble pop caused an over 80% drawdown from $20,000 to $3,100, and the theory would suggest that the current drawdown phase would need to end at less than 80% to be less damaging.

Currently, Bitcoin is down over 50% from the high it set in late June 2019 at roughly $14,000, before it was rejected and the current downtrend first began. If the crypto asset is poised to fall less than 80% but has already fallen over 50%, this could suggest that Bitcoin is close to a local bottom and could soon rally once again.

Whether or not Bitcoin rises enough to have another bubble is anyone’s guess, but recent targets of $50,000 to as much as $100,000 in the year 2021 have been called “tame” by a prominent crypto analyst.

Related Reading | Bitcoin At Risk Of 12 More Months Of Bear Hibernation, Possible Lower Low 

Still, Dow says that before anyone begins to buy the leading cryptocurrency by market cap at these levels, they should wait for a base to form much like it did when Bitcoin price traded at lows around $3,000.

Featured image from Shutterstock
Tags: bitcoincryptoecho bubblemark down
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a digital media executive and global remote work leader with a decade of content experience and excellent. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.

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