Long Term Update: Bitcoin is going out of control:)

I consider parabolic fitting a smoothing algorithm with poor forecasting results in most cases, but apart from theoretical considerations let see in detail if parabolic smoothing and forecasting can help us finding a strong long term resistance for BTC/USD.

Parabolic rise is also called an accelerated growth phase, so after it breaks out from a long basing pattern (for bitcoin the 16 months prior January 2013), it starts a rapid growth phase with a series of ever-steepening, rising trend lines. The acceleration of bitcoin price appears as a parabolic curve on the price chart, and can happen that the final stage of the move will end with a leg that is virtually straight up with a buying climax last bar.

Parabolics almost always collapse, this is what worries me at the moment, sometimes there is a bit of topping followed by a precipitous decline, but other times the straight up move reverses into a straight down move of equal or greater magnitude.

What is doing now bitcoin is a good example of a parabolic rise in an early stage, using last 10 weeks i derived the formula of the current parabolic that bitcoin is following:

y = 1.81 * x2 – 11* x + 35    where x2 is x to the power of 2

As i explained many times i think that normally a swing can last up to 25-30 bars, in this case weeks, extrapolating the above formula i can compute a target (you can do the same just substitute “x” with the number of weeks).

With 25 weeks i’ve a target of 890$, using 20 weeks i’ve a reasonable 540$ target; i think that a long term top beetween 500$ and 1000$ is likely to happen, all depends if bitcoin will reach the wall street crooks or not:)

chart

Jokes apart, if this weekly upswing will last 25 bars then the top is due next August/September 2013.

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21 thoughts on “Long Term Update: Bitcoin is going out of control:)

  1. pentarh

    So you expect price will stay in uptrend with increasing volatility for a half year. Will it keep growing with paralyzed economy? I can’t deal with programmers services as nobody knows how much bitcoin will cost on completion. And also many good brains are paralyzed by greed. Why to work, If they may just sit farting and get income from bitcoin growth…

    1. can’t be sure if it will follow the uptrend channel, i just applied the parabolic fitting to current bitcoin situation. IF it will reach 900$ by august and i see some bearish development i’ll close for sure the long trade i’ve opened at 13$ in december 2012.

  2. Benj FitzPatrick

    Out of curiosity, how did parabolic fitting and the analysis you’ve done in the past work for the first large rise back in 2011?

    1. the 2011 rise didnt last 25-30 weeks, only 10 weeks from april to mid june, this time there is more momentum for a long term rise, hopefully. in 2011 the market moved away from a parabolic rise after only 11 weeks.

  3. Joe

    not to sound crass but there’s no way bitcoin is going to continue at this rate of acceleration for another several weeks. technical analysis indicate aTop somewhere around $180, however the smart money already knows this, is likely to get out befor the price ever reaches is this amount. after that, the price is likely to drop to the $10 to $15 range by early to mid September. it could go lower. in the long term, it is likely to trend towards zero, however there may be one or two more roller coasters left in the ride. bitCoin is nothing but an intermediate transaction, a transaction halfway complete. the bit coin infrastructure has value in its Anonymity, however holding bitcoins has absolutely no purpose or value. the only value is in their actual use in making purchases. This is why their rise is purely speculative purchasing and holding. many will be badly burned.

  4. Hi Enky,
    what do you think is funding this exponential gorwth? Are people buyng more and more btc because they feel it is a good investment.

    In other words, is there a real value behind btcs or is it just a Ponzi scheme?

    1. it is not a ponzi scheme, it is an high risk investment, if you want to take the risk, buy bitcoins, otherwise stay out.
      Investment risk is directly correlated with volatility, and here volatility is 4-5 times an average stock listed at nasdaq or nyse.

      1. Hi Enky,

        My question was more on the philosophical side of things, I am really wondering what is it that people are buying when they get themselves 1 btc and they pay 140$ for it. Are they only buying the hope that someone else will be willing to buy them back at a higher price? Or do they really feeel that the btc system is a thriving economy and that they will be able to buy some goods with that btc one day?

        If the reason is the first (hope to sell them at a higher price) then I think we are talking about a bubble, no matter how much words we wrap around it.

        To clarify, my question to you, and to the other readers of this blog, is the following: Why do you buy bitcoins? Do you feel it is a system than can really be used as a goods/services trading platform in the future or do you only see it as a commodity whose price is growing fast?

        Btw, I am under the impression that there is a significant tension around 145$, the rate has approached this value several times in the last week but never broke it. What do you think about it?

        Cheers,

        Emme

      2. Emme, i think people buy bitcoins hoping to have a profits and also with the hope that one day bitcoin economy will allow you to buy things and services in btcs, For the rest i think that there are chances to go above 145$, bid size of the book is growing, there is the possibility to go above it. It is difficult to say if it is a bubble or not, because to define it as a bubble you should have some way to compare actual bitcoin value in relation to some system of stock valuation, for a stock is easy, for bitcoin i dont know how to valuate its fundamentals.

      3. It seems to me that the two goals are quite contradictory: I would not like to use an unstable asset to buy things and services. If the btc value is rising I have no incentive to spend them. If it is falling I am encouraged to empty my btc wallet and I would have none left to buy stuff.

        In fact I hope the next criptocurrency addresses this point. A slightly inflationary currency, perhaps, one that let miners produce coins continuously so that the inflation is ~2% per year, could be a good alternative (of course the scalability issues should also be addressed).

  5. I don’t think it is gonna work out like that. For the past 3 days, BTC still strucks around 133 – 142$ … Hope it goes up a lot 😀

  6. CyberM

    Hi. The formula of the current parabolic is wrong. You often mistaken with the upper limit. If you’re right about 20-25 weeks, price will be a lot more than 1000. How much more?

    1. the formula is correct, it has been derived using statistica 7.1 by statsoft and using last 10 weeks of data. i’ve only rounded the coefficients of the formula, i may add upper and lower 95% confidence limit if you want.

      1. CyberM

        Thanks for your blog. I’m bitcoin miner and a trader the layman.
        y = 1.81 * x2 – 11* x + 35, at 11 y=133$; at 14 y=236$.
        But now not 14th week and the 11th. Right?

      2. the data used:
        20.6489906
        22.0110092
        27.1700001
        29.7950191
        33.3112984
        42.7229996
        46.9815788
        71.4310074
        87.0099792
        133.699997

        10 data points, right coefficients are:
        35.5762
        -10.6598
        1.9359
        use this formula now,
        y=1.9359*x^2-10.6598*x+35.5762
        the target is the same, around 900$-1000$ for 25 weeks of parabolic rise
        we are in the 11th week now

      3. CyberM

        y=1.9359*x^2-10.6598*x+35.5762
        if we are in the 11th week now then y=152-186. But now 1 btc=255$-262$.
        The difference is about 100$.
        What am I doing wrong?

      4. it cant fit price perfectly, is fitting, there is always a difference, btw with the lag issue at mtgox
        now price is back at +-150

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