bitcorn

This is Jean-Paul Rodrigue’s stages of a bubble chart:

This is a chart of the price of Bitcoin from the BoE:

See any resemblance?

If you do, you might also note that we *could* be approaching the critical fear-through-capitulation stage.

Today’s low so far on the Bitstamp exchange is $399 and $383 on BTC-e exchange (changing quickly!). Here’s a snapshot of the BTC-e action via BitcoinWisdom:

We’re going to stick our neck out at this stage and call this the end of Bitcoin. The reason being, the positive-feedback loop forces which drove Bitcoin to $1124.76 have now become the same very same which will drive it down to the bottom.

And what are those magnifying forces? Partly the fact that the mechanism that ensures coins cannot be overproduced to benefit from high prices also prevents supply from being contracted when prices/demand collapses.

Partly also the fact that in a race to the bottom it doesn’t pay to switch off your mining machine if you’re the most efficient miner.

So how did we find ourselves on this delusional joy ride to begin with?

Well it’s the same old story of frivolity, irrational exuberance, hysteria and of course the mistaken belief that something like a free lunch is truly possible. (Not to mention the cult’s last great hope being lost, that of Scotland adopting Bitcoin…)

It’s also exactly the sort of irrationality and bad allocation of capital that the Fed is trying to shake-out at this stage with tightening talk.

We’re sure we may still see a few deep pocketed VCs or “believers” throw more money at defending the dream, but chances are we’ve now gone through the exponential break point. Time and money would probably be better spent trying to pump up Bitcoin V.2