Most mainstream economists and central banks insist that asset price bubbles are difficult to spot. That’s one reason they keep away from warning investors or intervening to deflate the bubble. As usual, the mainstream economists have it wrong.

Bubbles are incredibly easy to spot, especially when you look at a time series of prices on a chart. Whether it’s U.S. stocks in 1929, Japanese stocks in 1989 or dot-com stocks in 1999, the pattern is always the same.

The price trend rises gradually and persists for several years or longer. Then prices take off into a conventional rally with steep price gains. This is the bend in the hockey stick on a chart.

Then comes the bubble phase. In this stage, prices rise exponentially until they go almost vertical. At this point, you can see the bubble, sell out if you own any affected assets and then sit back and watch the crash.

This pattern was followed perfectly in the bitcoin bubble. Prices rose gradually over four years (2009–2013) from $1.00 to $200.00. Then they rallied steeply from $200 to $1,000 in three years (2013–16). Then things got crazy.

Over the course of 2017, bitcoin rocketed from $2,000 to $20,000, the greatest asset price bubble of all time. The crash came right on time in early 2018.

But bubble crashes are not symmetric to the bubble itself. It takes time to let all of the air out of the bubble. This is because of those who bought in at the end and are in denial about what happened. They hold their tokens in hopes of a rally or return to the old high, but it never happens. It’s just a long, slow grind down until the last wishful thinker throws in the towel.

Bitcoin has spent the past year grinding down in stages. This article reveals a new post-bubble low of $4,100 for bitcoin. The price has dropped even lower, to $3,500, since this article was published.

Commentators blame SEC enforcement, wars between miners, bitcoin “forks” and general market uncertainty. All of these explanations are after-the-fact rationalizations. The reality is that bubbles burst in stages, not all at once. Bitcoin is no exception.

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