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.