Despite the market coming a long way in the last 4 years, The Ethereum price action bears some similarities to the first cryptocurrency bubble.
Ethereum is last trading at $2,012.00, down $232.00 (-10.36%)
In spite of the constant cries that things are ‘”different this time around,” the 2017 analog is playing out almost perfectly. The ETH price action bears a striking resemblance to 2017 and early 2018.
Moreover, both 2017/18 and 2021 thus far are following the famous ‘stages in a bubble’ illustration below.
The Stealth/Awareness Phase
2017: In 2017, we could liken the early part of the year to the stealth, then awareness phases. The Ethereum price gained over 5000% to $439.00 before encountering the first sell-off.
2021: Following the March pandemic low of $108.00 in March 2020, ETH enjoyed pretty smooth sailing, through to the February 2021 high of $2,129.00 (+2,400%).
The first sell-off and Bear-trap
2017: From June through July, the Ethereum price dropped 70% to $155.00. This resulted in many of the early skeptics proclaiming the market was finished. However, ETH stabilized and went on to recover.
2021: In a sharp correction from the February high, ETH lost 40% over 9 days, trading from $2,129.00 down to $1,287.00. Again, the Ethereum price recovered.
Mania Phase: Media attention, Enthusiasm, and Greed
2017: From the August low, ETH steadily increased, and by December was 540% higher and nudging $900.00. This was around the time the tabloids and mainstream media started to cover cryptocurrencies, and the general public became more aware of their existence.
2020: While nowhere as impressive as 2017’s bounce, within 5 weeks, the Ethereum price had recovered from its February low and firmly approaching the next phase of the cycle.
Blow off Phase: Delusion and New Paradigm
I’ll start this by describing an interaction I had with a neighbor of mine. Let’s call him ‘Mike’. Mike is a farmer and has been for 20 years. He typically spends his days feeding his chickens and tending to his goats
About 6 weeks ago, Mike turned up at my place asking me if he should buy Ethereum. He said he’d read that it was going to $10,000, and he didn’t want to miss the opportunity.
At the time, ETH was trading around $3,200 from memory. Anyway, Whether he did or not, I have no idea. I make it a point never to give investment advice to friends and family as you are never paid for the winners but constantly reminded of the losers.
2018: In the first two weeks of January, the Etherum price more than doubled, gaining 130% from $661.00 to $1,529.00. This proved to be the top. This brought many of the earlier skeptics back into the market, chasing the price higher. The FOMO-fuelled rally eventually leading to a blow-off top.
2021: In the two weeks following the 26th of April, ETH extended higher by 107% to this year’s peak of $4,646.00. This May or may not prove to be the top.
Denial and Bull Trap
2018: The first leg of the crash wiped 76% from the Ethereum price in a week. The week after, a knee-jerk 86% bounce followed.
2021: In May’s wipeout, ETH dropped 63% over the course of seven days, gaining 75% in the seven that followed.
Fear and Capitulation
2018: After initially bouncing, Ethereum turned lower again. The second leg lower resulted in 71% of ETH’s value being wiped out in the next two months. Eventually, the Ethereum price bottomed in December 2018 at $79.60, some 95% below its 2018 peak. It would take 3 years for ETH to make a new high.
2021: So far, Ethereum is down 35% from the $3,007.00 top of the reactive bounce from the 23rd of May low.
I’m not suggesting it will, but if ETH follows the 2018 analog and loses 71%, It would take the price back to $900.00. Although this seems pretty far-fetched if you are focusing on the $4,464.00 top of last month, It was a price last traded on the 11th of January.
It can also be remembered as the peak of the enthusiasm and greed phase in 2017.
It goes without saying that past performance is no indication of what happens in the future. But, unfortunately, manias and speculative bubbles have a habit of following similar paths. This is much less to do with the price but more about human behavior and investor psychology.
Whilst we all hope it’s different this time, you must also consider that it may not be.
Ethereum price chart (Weekly)
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