When the Bitcoin Bubble Bursts: What Will It Mean?

The price of Bitcoin has tripled over the past month.  A clear "feedback" loop is underway in bitcoin price action right now.

The Media reports on the new highs, which ignites interest from mom and pop investors who want in on the opportunity. Then, it hits another new high. The Media reports on it again, which ignites another round of buying.

Some Wall Street professionals have warned this could be bubble-like activity. Maybe, maybe not. Only time will tell. That does beg that question, could a Bitcoin price retreat have a spillover impact on other financial markets or the broader economy?

Let's look to history as a guide.

When bubbles burst in the past two decades there has been meaningful impact on the broader economy and the financial markets.

  1. Remember the Dot.com bubble that burst in early 2000?
  • It took the S&P 500 13 years before it surpassed the 2000 high again.
  1. Remember the U.S. Housing Bubble that peaked in 2006?
  •  Housing prices in some states still have not returned to those price levels.

Bitcoin has few Links to the Actual Economy

Bitcoin is not intertwined in the real economy, or even the financial markets in any meaningful way. One major investment firmed called it "a curiosity." If the price of bitcoin were to correct sharply lower, it won't hurt the economy, the labor market, or the stock market. That's the good news.

Gold Report

The price of gold fell last week, skidding to a fresh four-month low? The culprit?

Blame it on the speculators.

The "excuses" for gold selling included:

  • U.S. dollar strength
  • Senate approval of the U.S. tax cut package
  • Stronger-than-expected U.S. labor report for November

But, at the end of the day, it was speculators pressing on the market as day traders took advantage of "shorting" opportunities.

Fed Watch

As expected, the Federal Reserve hiked interest rates at this week's meeting on Wednesday afternoon. While the rate hike was widely expected, it could open the door to modest weakness in the gold market. The short-term gold chart outlook has weakened in the wake of the recent selling. That means there could more to go on the downside, before a "bottom" is found and long-term investors swoop in for great bargains.

What level should you be watching for? The $1,225-$1,215 per ounce area offers potential support for gold. If the price drops that far in the days ahead, long-term investors would be lucky to have the opportunity to buy at that price.

Stay tuned. Buying opportunity ahead for gold.