Bitcoin has reclaimed $21,000 USD after the November 2022 FTX crash. The 30% price increase in 2 months has speculators asking; is this a bull trap, an echo bubble, or a super-cycle?
What Is An Echo Bubble?
An echo bubble is a post-bubble market rally that results in another, smaller bubble. The echo bubble is smaller than the original bubble and much like a bull market, echo bubbles can take months to play out. For crypto investors, an echo bubble is a welcome distraction and an opportunity to make money after 12 months of down markets.
Echo bubbles are common in financial markets, after the Great Crash of 1929 the US stock market rallied and regained 50% of its value the following year. Unfortunately that echo bubble was followed by the Great Depression – hopefully we can avoid that same fate.
Crypto Echo Bubble Of 2019
In the 2017 crypto cycle, Bitcoin’s price topped at over $20,000 USD. In 2019 the market experienced an echo bubble when Bitcoin’s price soared to $13,880, an increase of over 400% from its lows. Investors who were able to time the market 4x’d their money.
Echo bubbles tend to be less inflated than the prior bubble as was the case for bitcoin from 2017 – 2019. The initial drawdown from the 2017 bull market high was 80% from $20,000 to $3,100. In comparison, the 2019 echo bubble drawdown was only 50% from a peak of $14,000 to $7,000. The forming of an echo bubble also indicated that Bitcoin has reached its lowest price for the bear market, as subsequent drawdowns will be a smaller percentage.
An Echo Bubble In 2023
Hypothetically speaking, let’s speculate what Bitcoin’s price could be in 2023 if there’s a comparable echo bubble to 2019’s. Note that Bitcoin’s returns diminish each cycle, meaning the price increases by a smaller percentage from the previous all time high. We can assume diminishing returns also apply to the size of an echo bubble and that in 2023 we won’t see a 400x from Bitcoin’s low of $15,649 (which would put us at $62,000, almost all time high).
If Bitcoin’s price doubles the price will be $31,300 USD and people who bought the bottom will look very smart. On a recent Bankless podcast episode, prominent early-Bitcoiner Erik Voorhees predicted Bitcoin could reach $40,000 in 2023, an increase from the November 2022 lows of 155%. What is unlikely is that Bitcoin’s price will reach a new all time high above $69,000 in 2023 unless the macroeconomic situation changes drastically.
One thing is for sure, just like a real bubble an echo bubble can pop. Stay safe out there degens.