Continued decline on the way
Even by /u/moral_agent's view, which meant that the price had to be below the lower boundary for three consecutive days, we can now conclude that his model has broken. We need to figure out a new model based upon the latest information.
My opinion is that the price continues to decline slowly in a stepladder, with crashes followed by periods of stability, for the mid-term. A lot of people have different views about what the underlying support factors of the model were, but whatever they were, it broke, and there is a crisis of confidence occurring. I do not believe that the previous model can be salvaged by just adjusting the lower boundary downwards every day as the price continues to decline, and by pushing the date of the next bubble a few weeks forward. Something has changed and trying to fit the new pattern to the model ignores that a change has happened.
I have and continue to disagree with the people in /r/bitcoinmarkets who have been talking about "peak stability" for several weeks; the price is not stable and it is not following the previous model. I also continue to disagree with /u/lowstrife's prediction of a September bubble that means this cycle was simply delayed.
The only way to break out of this slide will be if there is a game-changing positive news item. Merchant adoption doesn't count as game-changing, and neither do the myriad of new product announcements and new exchanges. A game changer would have to be people in some foreign country buying bitcoins at frantic rates, the New York regulations being permanently shelved, or some other unbelievably good news.
Why did the model fail?
The model failed because the transaction volume has not been increasing (you can debate the cause of that). There are actually some interesting posts on bitcointalk.org that model things like transaction volume and active addresses and correlate them with price.
What is still valuable from the previous model?
Here are some things that I still think will hold from the previous model despite it having broken:
- The idea that the market does not respond to the news, but that the news people pay attention to is determined by the phase of the market. The reason that good news isn't having any effect now is because we are on the downward phase of a cycle
- The fact that there will be bubbles and crashes
- There are "true" bubbles and "false" bubbles that represent turning points in the market when people evaluate the situation after a certain time period
The failure of the model doesn't mean that the future of bitcoin is in jeopardy. I think that this is just the beginning of a long downtrend that will eventually turn around months from now. However, the things I watch out for to determine if it will ever be necessary to jump ship are:
- A large merchant stops accepting bitcoins for whatever reason
- The price falls below $266, which was the height of the bubble three cycles ago
- The number of active users in /r/bitcoin and bitcointalk.org starts to decline significantly
/r/bitcoinmarkets has it wrong
The discussion in /r/bitcoinmarkets over how to prevent bearish users from being downvoted has it wrong. The problem isn't that people are mistaking the purpose of the buttons; it's that they are purposely using the buttons wrongly. Changing the voting system is just going to encourage people to misuse the new voting system.
The problem is that the moderators in /r/bitcoinmarkets need to be very aggressive at eliminating personal attacks. I asked /u/kibubik a few weeks ago to take a more active role, and he has deleted some posts here that violate rule #1. In /r/bitcoinmarkets, every post that has any sort of personal attack needs to be deleted and the user temporarily banned.
Personal attacks have far-reaching effects well beyond the single post or thread that follows that post. They poison the discussion in the rest of the forum, cause other people to join in the groupthink against those users instead of thinking for themselves, and cause people to hold grudges and downvote people who they are at war with. The only solution to /r/bitcoinmarkets' problem is to push out users who are destroying the environment for the good contributors.