Bitcoin has been all the talk of 2021 with a large bull market that saw the price increase 300% compared to its previous all-time high. Sadly, the price fell quite dramatically from the all-time high, but it has made a recovery.
This has led some in the cryptocurrency space to proclaim that Bitcoin can make a double bubble just like it did in 2013. This article will explain what exactly a double is and why a double bubble is possible in 2013.
What is a Double Bubble?
A double bubble refers to a situation in which an all time high is reached twice with a major crash in between within the same year. For as volatile of an asset as bitcoin, a double bubble is actually pretty rare. It has only occurred once in modern bitcoin history.
That was back in 2013. Bitcoin opened the year at $13, rose to $129 in June, crashed to $80 in July, and hit $946 in December.
It has what can only be described as a wild ride in 2013 with two all time highs separated by one major crash.
Why Bitcoin Might Make a Double Bubble in 2021
A lot of technical analysis experts have predicted that bitcoin would have a double bubble in 2021. The reason mostly relates to the unrealized profit and loss (UP&L) staying above 0.5, which is something that has not happened in previous one time bubbles.
It only happened in the 2013 double bubble.
However, the Bitcoin market is a completely different market than it was back in 2013. Bitcoin was mostly retail investors back in 2013. Subsequently, the price was mostly operated in retail buying spurts caused by major media events.
In other words, it was a very inefficient market driven by the amount of hype the media could pump into Bitcoin.
The market in 2021 looks completely different.
For one, institutional investors make up a considerable amount of the bitcoin market in 2021. Tesla has over $1 billion dollars worth of bitcoin on its balance sheet. MicroStrategy has even more than that.
Not to mention other institutional investment tools like Grayscale Bitcoin Trust purchasing bitcoin.
To summarize, it seems probable that bitcoin will have a double bubble like in 2013 simply based on technical analysis. This prediction is solidified even more when we consider the amount of institutional money that has entered Bitcoin compared to 2013.
A Bitcoin Supercycle Might Be Possible
The Bitcoin supercycle is more of a thesis than an actual model. But the implication of what it predicts has taken strong hold in those holding a considerable amount of bitcoin in wallets.
In simple terms, the Bitcoin supercycle thesis puts forward the idea that the price of Bitcoin will basically go vertical when Bitcoin reaches mass adoption.
Of course, this thesis was put forward when Bitcoin was attempting to usurp Visa, banks, and every other money transferring service.
That goal changed sometime in late 2020 or early 2021. Bitcoin suddenly became “digital gold.” No one actually spends their bitcoin. They simply keep it stored in their hardware wallet with the hope that the price will eventually increase.
Anyway, the Bitcoin supercycle thesis looks even more promising with the new “digital gold” use of Bitcoin for a few reasons.
The first is sort of obvious. People don’t actually sell their bitcoin because it is, well, akin to gold. It is viewed as a safe investment compared to fiat currency.
This has become blatantly obvious after the US Federal Reserve decided to print nearly 30% of the total money supply in a single year.
Suddenly, a digital asset with a fixed supply became a lot more interesting as an investment.
The other reason is less obvious, but became apparent with Tesla and MicroStrategy’s reason for holding a large amount of bitcoin.
The supply of fiat currency rises every year. It took an especially dramatic turn in 2020 due to the Federal Reserve’s response to the COVID-19 pandemic. This has resulted in companies that hold a lot of cash on the balance sheet deciding to put some of that cash into an appreciating asset (Bitcoin) rather than a depreciating asset (fiat currency).
MicroStrategy took an even more interesting angle by purchasing bitcoin using very cheap loans provided by the Federal Reserve.
The grand point with all this is that institutions, and their large spending power, have decided to use bitcoin as a sort of digital gold. And this adoption has driven the price of bitcoin to new highs.
Continued adoption of bitcoin as digital gold by institutions and individuals alike will likely cause bitcoin to enter into a super cycle.
A super cycle will make the prospect of a double bubble seem small in comparison.
The Path Up Will Not Be Linear
The path Bitcoin will take as it reaches the height of its second all time high of 2021 will not be a linear path.
In other words, there will be a lot of dips and micro crashes along the way. These will serve as a way to separate the weaker hands from their bitcoin.
The important part with investing in bitcoin is to remember that 50% dips are not uncommon. But holding onto it for a long time has always paid off.
That covers it for why bitcoin hitting a double bubble in 2013 makes a lot of sense. The metrics simply line up for this type of price increase to occur.
More importantly, increasing adoption of bitcoin in 2021 by institutions and individuals looking for a safe place to store wealth might lead to the long theorized super cycle occurring, which could see the price of bitcoin rise to six figures.