Editor’s note: This article was first published in December 2018, during the crash that followed the December 2017 peak. Bitcoin later recovered, reaching around $69,000 in 2021 and above $100,000 in 2024–2025, so describing its chart as a bubble that “has already burst” reads very differently today.
The news for Bitcoin hasn’t been good lately. As its price keeps collapsing, many investors are doubling down on the cryptocurrency. Practically all the wildly bullish forecasts for Bitcoin have failed: there was talk of the cryptocurrency reaching $50,000 in 2018, and even of $100,000.
But reality shows nothing but a very ugly chart, similar to those of other bubbles that have already burst. At this point, the logical and sensible thing would be to admit the mistake, to admit you were wrong. So why do some investors double down when the evidence shows they’re wrong?
See also: The 4 phases of a bubble
Why deny the evidence that this chart looks exactly like those of other bubbles?
What’s happening here is that investors have treated Bitcoin not as an investment but as part of their identity.
I’m Catholic, I’m Protestant, I’m left-wing, I’m right-wing, I’m a vegetarian, I’m an environmentalist, I’m a Bitcoin holder.
As investors, we can’t turn an investment into a belief: it’s a luxury we can’t afford. Throughout history, there have been companies that were very profitable for decades and that eventually had to be let go. Good investments ended up becoming bad investments over time. An investor has to be in when it’s time to be in and, when an investment goes wrong, admit the mistake and let go.
When you turn an investment into a belief, on the other hand, you’ll never be wrong again. Or rather, you’ll never admit you’re wrong, and you’ll cling to your belief because it’s part of your identity.
In investing, this identity problem costs money, because it breaks one of the first principles of investing: don’t fall in love with the company you invest in. Don’t fall in love with the investment. When we invest, we do it to make money. If you’re looking for love, find yourself a girlfriend, because Bitcoin isn’t going to love you back.
Is Bitcoin a bubble? Would it be a good idea to buy Bitcoin now that the price has fallen?
This article (How to tell whether an asset is a bubble) gives the keys to identifying a bubble, so there you’ll find the answer not only for Bitcoin but for any other asset you come across in the future.
Featured image: Tiberiandusk, CC BY-SA 4.0, via Wikimedia Commons.
