WHY does bitcoin’s price crash after a huge run up, like 2011, 2013, 2017, and 2021?

00:01 Why does Bitcoin's price crash after a 00:04 huge run up like 20 20 uh 2011, 2013, 00:09 2017, and 2021? Well, in all of those 00:12 cases, Bitcoin is an amazing asset, so 00:14 it goes up over time. As the price goes 00:16 up, more people notice that the price is 00:18 going up. Eventually, lots of people 00:21 notice that the price is going up, and 00:23 people get riskier and riskier with how 00:26 they're buying Bitcoin. So initially 00:27 when the price is down at a normal 00:29 sustainable level based on uh based on 00:32 adoption of Bitcoin, people are doing 00:34 very normal things with it. They're 00:36 buying it with money they actually have. 00:38 But as they get more confident that the 00:40 price is going up and it's going to keep 00:41 going up and it's going up even more and 00:43 more and more, people start getting 00:45 risky. So they start doing increasingly 00:49 uh more unsustainable things to buy 00:52 Bitcoin and eventually they start 00:54 borrowing money to buy Bitcoin and then 00:56 they borrow money against borrowed money 00:57 to buy Bitcoin and then they borrow 00:59 against their Bitcoin to get more money 01:01 to buy more Bitcoin. And all of those 01:03 things involve having to pay back the 01:06 money money that was borrowed, which 01:07 means they're only sustainable if the 01:10 price keeps going up. And the more the 01:11 price goes up, the riskier people get. 01:13 And pretty soon they're betting it's 01:14 going to go up 2 to1. then they're 01:16 betting it's going to go up 5 to one, 01:17 then 10 to one, then 40 to one. And even 01:20 some websites I I believe like Bitmax 01:23 allow you to bet 100 to one on your 01:26 money that something is going up. So the 01:29 the higher it gets, the more people get 01:31 crazier and crazier with how they're 01:33 buying it. And eventually the person who 01:36 is borrowing money 100 to1, 40 to1, even 01:39 10 to1 has to pay that money back or the 01:42 market just can't sustain the upward 01:44 trajectory because there's just not 01:46 enough new adoption of Bitcoin to 01:49 sustain that parabolic rise. As a 01:52 result, the price starts to fall. Well, 01:54 as the price starts to fall, everyone 01:55 who borrowed money to buy it, which made 01:58 the price go up at the very end of the 01:60 parabolic rise, parabolic means 02:02 parabola, meaning it's like a line that 02:04 basically starts going up and then up 02:06 and up and up and then goes basically 02:08 vertical up. That's called a uh 02:11 parabolic rise. Well, that happens 02:13 because people are getting riskier and 02:15 riskier. Now, long-term, the market can 02:17 actually afford almost any price level 02:20 of Bitcoin. So, for example, the price 02:22 topped out in 2011 at $32 before going 02:26 through a major correction down to $2. 02:28 Now, did that mean Bitcoin was not worth 02:30 $32? No. It meant that back in 2011 when 02:34 the total number of people using Bitcoin 02:36 was tiny, tiny, tiny, it could not 02:38 sustain $32, which is why it went back 02:41 down to $2. Again, that didn't mean it 02:44 wasn't going to be worth $32. It just 02:46 meant that the adoption was not quite 02:48 ready to sustain a $32 price. Same when 02:51 the price went up to $1,200, that did 02:53 not mean Bitcoin was not worth $1,200. 02:56 It just meant that the marketplace it 02:59 went up so fast from $2 up to $1,200 03:04 that it was there was not enough market 03:06 uh adoption at that time. I mean, we're 03:09 dealing with like total market worldwide 03:11 adoption of Bitcoin back in 2013 of like 03:13 I don't know.1%. I mean, just 03:15 ridiculously small numbers of people had 03:18 adopted Bitcoin, which meant $1,200. 03:20 Bitcoin was not quite ready to sustain a 03:23 $1,200 price because it got there in the 03:25 case of $32 and the case of $1,200. It 03:29 got there over a series of months where 03:31 the price just went crazy up. And it 03:34 went crazy up and people started 03:35 speculating and they started speculating 03:37 and people piled in who had no idea what 03:40 Bitcoin was. They just loved the fact 03:42 that it seemed to be going up. And so it 03:44 went up and up and up and then it became 03:45 unsustainable. So the same is true in 03:48 2017. It's not that Bitcoin was not 03:50 worth $19,000. 03:52 It just was not worth 19. It couldn't 03:55 sustain that price in 2017. And same in 03:58 2021 at $69,000. 04:01 Obviously, Bitcoin is worth more than 04:03 that today. And even the biggest price 04:06 drop this year back in April, I think it 04:09 was like April 5th or whatever it was. 04:11 Anyway, sometime in April when it 04:13 dropped back to $74,000, 04:15 well, that's $74,000 after a 33% price 04:18 correction, that is still $5,000 higher 04:21 than the highest it ever got in 2021. 04:24 So, even in a major dip, it was still 04:26 higher than the than the peak of the 04:28 2021 price, which tells us again that 04:32 Bitcoin was worth more than $69,000. it 04:35 just was not ready to sustain that price 04:38 level in 2021 because the adoption in 04:40 2021 was not quite high enough to 04:43 sustain a price that high. So the same 04:45 is true today. Now I personally do not 04:48 think $114,000 04:50 is overheated. Again, you can follow 04:52 James Czech. He has by far the best 04:54 research on uh Bitcoin and whether it's 04:57 overheated or not overheated and whether 04:60 there's likely to be a price correction 05:02 and if so, how much. Um, and usually I 05:05 post uh some of his stuff. Sometimes 05:07 I'll post some highlights. But it cost 05:09 $29 a month. But if you're super into 05:11 Bitcoin or if you're planning on buying 05:12 a lot of Bitcoin over the coming months, 05:14 it is absolutely worth $29 a month. Even 05:17 if you just turn it on, read a few 05:18 updates and turn it off or turn it on 05:20 for a month or two and then turn it off. 05:22 Um, but anyway, he's fantastic and he 05:24 goes through why why we are in the 05:27 cycles, if we're overheated, how much 05:29 people are borrowing, using borrowed 05:31 money to buy Bitcoin. He he walks 05:34 through all of those metrics um and 05:36 explains them to you in a pretty 05:38 accessible way to help you understand 05:40 are we in the parabolic phase when 05:42 things are going crazy or are we still 05:44 in the relative calm of you know the 05:47 seventh eighth or ninth inning of this 05:50 thing. So um but anyway all assets work 05:53 that way. So, Amazon, back after the dot 05:56 crash, the price of Amazon dropped from 05:60 $106 to, I believe, $6. It was a 94% 06:04 drop, comparable to Bitcoin's price 06:07 crash from $32 down to $2. So, 32 down 06:11 to two is the same as 106 down to six. 06:14 So, uh, right after the.com bust in 06:17 2020, sorry, not 2020, uh, the year 06:19 2000, the price correction of Amazon 06:22 stock was roughly equivalent to the very 06:24 first big price correction uh, that 06:27 Bitcoin went through. Uh, does that mean 06:29 Amazon stock was not worth $106? And 06:32 again, it's gone through some stock 06:34 splits. So, it's, you know, a lot higher 06:35 than that now. And it's even a lot 06:37 higher than whatever the stock chart 06:38 shows right now as compared to the past 06:40 because I believe it went through some 06:42 stock splits. So that one that 106 down 06:45 to six uh is probably comparatively 06:48 different numbers now. Uh but anyway, so 06:50 Amazon is radically higher radically 06:53 radically radically higher than the 06:56 prices back in the year 2000 because 06:58 again I don't know what maybe the 06:59 equivalent is like it went from like 160 07:02 cents to 6 cents or something like that. 07:03 Anyway, whatever it was, uh, it's been 07:05 through a bunch of stock splits, which 07:06 means you can't really compare current 07:08 numbers to the past unless you compare 07:10 it on current stock charts, which I have 07:12 not done. But anyway, that does not mean 07:14 Amazon was not worth the price in 20 uh 07:17 2001. it was it just wasn't quite ready 07:20 to sustain that price right then because 07:23 the total adoption uh worldwide of 07:26 Amazon and um online you know e-commerce 07:31 web you know purchasing uh was not quite 07:34 there yet would it become there yes 07:36 absolutely ultimately Amazon is now one 07:38 of the most valuable companies in the 07:39 world it just wasn't quite ready to 07:41 sustain that back then but it got there 07:44 it grew into it so another way to think 07:46 about it is you know is Bitcoin worth 07:48 $32? Yes, it just needed to grow into 07:51 that. Was it worth $1,200? Yes, it just 07:54 needed to grow grow into that. Was it 07:56 worth $19,000? Yes, it needed to grow 07:57 into that. Was it worth 69,000? Yes, it 08:00 needed to grow into that. Um, so if we 08:03 get a huge price rise in the second half 08:06 of this year, for example, we shoot from 08:08 $114,000 08:10 up to 180 or 210 or 220 or 236, which is 08:14 like the highest it could possibly go uh 08:17 this year, which is like highly 08:19 unlikely, but could go, who knows? Uh, 08:22 if we go that high, there will be a 08:24 price correction because it's not that 08:25 Bitcoin is not worth that. It's because 08:27 you got to take some time to grow into 08:29 things. uh just like a kid, you know, 08:31 and they're closed. If the, you know, if 08:34 if you buy an, you know, if you do buy 08:36 an adult or a uh, you know, a youth 08:39 large for your kid and it's way too big 08:41 for them, that doesn't mean it's always 08:42 going to be too big for them. It just 08:43 means they're going to have to grow into 08:44 that youth large and they may only 08:46 really be a youth medium or a youth 08:48 small. They will become a youth large 08:50 and then they will become ultimately 08:52 adult sizes. It's just going to take 08:53 them some time. So to recap, Bitcoin 08:56 goes through price corrections because 08:59 there's a huge parabolic rise before 09:01 them. If Bitcoin does not go through a 09:04 huge parabolic rise, that tends to 09:06 result in not having huge price 09:08 corrections. Um that again, that doesn't 09:10 mean you can't get a 33% or 32% price 09:13 correction. We have had two price 09:15 corrections between 30% and 33% uh since 09:19 2022. 09:21 Um, so if that's absolutely possible on 09:23 the way up, but that's obviously 09:25 different than the massive price 09:27 corrections that were experienced in the 09:28 early days of Bitcoin. So hopefully that 09:31 makes sense. As James Czech says, the, 09:34 you know, the bull authors the bear if 09:36 there's a huge price rise that's 09:37 unsustainable. There's got to be a price 09:39 correction as the market grows into that 09:42 value. If the price went up that high 09:45 because a ton of people borrowed a ton 09:46 of money, well, guess what? They're 09:48 going to have to pay back that money. 09:50 and the price is going to have to come 09:51 back down to adjust. Um, so I don't 09:54 think we are in a parabolic rise right 09:56 now. It does not feel like we are, but 09:60 you never know. And James Czech is by 10:02 far the best person to follow to give 10:04 insights on where we are in the cycle if 10:07 we're at the top. And probably the best 10:09 thing you can do with James Czech is not 10:11 buy the very tip top of the market 10:14 because he will he will tell you when 10:16 things are getting steamy and overcooked 10:18 and you know uh the price is 10:21 unsustainable and it just has to come 10:23 back down because all the metrics he's 10:24 looking at tell you exactly that. 10:26 Hopefully all that makes sense. 10:28 Hopefully it's helpful. Thanks everyone.