Because a picture is worth a thousand words, we wanted to share a few pictures of what a bubble looks like.
Many of us experienced our first memorable bubble in the 1990s. It's come to be known as the "Tech Bubble," and this is what it looks like on a chart. Between January of 1995 and December of 1999, a 5 year window, the Nasdaq grew to 9.1 times is starting value. It was one of the most exciting periods the stock market had ever known.
However, the Nasdaq Victory Party ended abruptly in December of 1999, and by October 2002, just less than 2 years later, the Nasdaq had fallen all the way back below 800, a level last seen in April 1997. The losses from peak to trough in the Nasdaq were over 78%, and the lives of many who entered the tech trade were forever changed.
One of the next large scale bubbles we saw was in Oil. It started out in January of 2007 at around $50 / barrel. By July of 2008, it had passed $145 / barrel, reaching 2.9 times its starting value in about a year and a half. This party also ended abruptly, and by December of 2008, less than 5 months after reaching its peak, oil had dropped back to under $34 / barrel, losing over 76% of its peak value.
With investors fearful of the market from their tech losses and fearful of commodities from their oil losses, Gold and Silver came into vogue. While gold and silver are indeed commodities, they've been used as a type of currency to effect trade for thousands of years. Investors viewed these commodities not as commodities, but as safe and protected currencies, and this gave occasion to their bubbles as well.
Between January of 2005 and August of 2011, Gold had appreciated to more than 4.4 times its starting value.
As with the Nasdaq (Tech) and Oil, the party ended abruptly without notice. By December of 2015, Gold had lost 46% of its peak value. Silver got a later start in October of 2008 and reached its peak in April 2011 at 5 times its starting value.
As with Gold, Oil, and the Tech Sector, the selloff came suddenly, and by June of 2013 it had lost more than 61% of its peak value.
And now, today, we are looking at Bitcoin, which is currently worth 16 times what it was worth in May of 2017, just 7 short months ago. This has been one of the most meteoric rises of an asset in recorded history.
And has has happened with all previous bubbles, and we suspect all future (and current bubbles), picking the top will be virtually impossible. We cannot tell where or when this train will stop, but we are very confident it will be a short stop, and all riders will want to be off the train at that time. As the Tech Bubble, the Oil Bubble, the Gold Bubble, the Silver Bubble, and the Housing Bubble cost many investors a significant portion of their life's savings, so too can Bitcoin. The ensuing damage will be proportionate to the amount of investors' net worth placed in Bitcoin. Fortunately, for the present, the level of total global investment in Bitcoin is relatively small, and as such, we do not presently believe its fall would pack the power to bring the rest of the economy and other markets down with it. However, if the frenzy continues, it may one day get there.
We've also included a link HEREto a video we believe is worth watching. It exposes the risks some are taking to gain exposure to Bitcoin. It also discusses how it's a one sided market thus far. Eventually, we will be on the other side of the peak, and our hope is that the great majority of investors will not be taken by surprise when that happens.
