This chart (which is from Feb 2, so it doesn’t capture Bitcoin’s further decline below $7k) shows that Bitcoin is now about 2/3 of its way through the bubble life-cycle, and about half-way through its fall from its apex.
Projecting from the paths of previous bubbles, we shouldn’t be surprised if Bitcoin’s price ends up somewhere in the vicinity of $2,500-$3,000 by the time the dust settles.
Did The Stock Market Bubble Just “Pop”?
Despite the extreme drop in the stock market over the past two days, any sort of material bubble retracement has yet to begin — which should give you an appreciation of how overstretched its current valuation is.
Look at this chart of the S&P 500 index. Today’s height dwarfs those of the previous two bubbles the index has experienced this century.
The period from 2017 on sure looks like the acceleration seen during a blow-off top. If indeed so, does the 6% drop we’ve just seen over the past two trading days signify the turning point has now arrived?
Crazily, the carnage we’ve seen in the stock market over the past two days is just barely visible in this chart. If indeed the top is in and we begin retracing the classic bubble curve, the absolute value of the losses that will ensue will be gargantuan.
If the S&P only retraces down to the HIGHS of its previous two bubbles (around 1,500), it would need to fall over 43% from where it just closed today. And history suggests a full retracement would put the index closer to 750-1,000 — at least two-thirds lower than its current valuation.
How Spooked Is The Herd?
As a reminder, bubbles are psychological phenomena. They are created when perception clouds judgment to the point where it concludes “Fundamentals don’t matter”.
And they don’t. At least, not while the mania phase is playing out.
But once the last manic buyer (the “greatest” fool) has joined the party, there’s no one left to dupe. And as the meteoric price increase stops and then reverses, the herd becomes increasingly skittish until a full-blown stampede occurs.
We’ve been watching that stampede happen in the crypto space over the past 4 weeks. We may have just seen it start in the stock markets.
How much farther may prices fall from here? And how quickly?
History gives us a good guide for estimating, as we’ve done above. But the actual trajectory will be determined by how spooked the herd is.
For a market that has known no fear for nearly eight years now, a little panic can quickly escalate to an out-of-control selling frenzy.
Want proof? We saw it late today in the complete collapse in XIV, the inverse-VIX (i.e. short volatility) ETN that has been one of Wall Street’s most crowded trades of late. It lost over 90% of its value at the market close:
Chart of collapse of XIV ETF.
The repercussions of this are going to send seismic shockwaves through the markets as a tsunami of margin calls erupts. A cascading wave of sell-orders that pushes the market further into the red at an accelerating pace from here is a real possibility that can not be dismissed at this point.
Those concerned about what may happen next should read our premium report, “Is This It?” issued over the past weekend.
In it, we examine the congregating perfect storm of crash triggers — rising interest rates, a fast-weakening dollar, a sudden return of volatility to the markets after a decade of absence, rising oil prices — and calculate whether the S&P’s sudden 6% rout is the start of a 2008-style market melt-down (or worse).
Make no mistake: these are sick, distorted, deformed and liquidity-addicted bubble markets. They’ve gotten entirely too dependent on continued largess from the central banks.
That is now ending.
After so many years of such extreme market manipulation finally gives way, the coming losses will be staggeringly enormous.
The chief concern of any prudent investor right now should be: How do I avoid being collateral damage in the coming reckoning?
The following article was republished with permission from Peak Prosperity.