Building Confidence in Blockchain by Carter Woetzel

Author:Carter Woetzel
Language: eng
Format: epub
ISBN: 978-1-64137-693-8
Publisher: New Degree Press
Published: 2020-02-14T16:00:00+00:00

Parabolic Stupidity

Parabolic growth. Soaring prices. Numbers in the green. Consecutive days of massive growth. Endorphins. Elation. Greed.

“Every once in a while, the market does something so stupid it takes your breath away.”

—Jim Cramer

Parabolic growth is an uptrend in price in which the angle of ascent increases as time continues onward in the shape of a parabolic function. Parabolic growth is fueled by retail money and FOMO. Parabolic growth cannot be maintained because of the laws of economics. The opportunity cost of alternative purchasable items will eventually come into play, as well as the fact that our planet has a finite amount of resources.

Suri Duddella, an analyst who specializes in the impact of sentiment swings on price, found that post-parabolic growth typically sees a 62–80 percent reversal in price on average.185 Gold prices from 2000 to 2011 are an excellent example of this: prices increased from a mere $200 all the way to $1,800. Naturally, 2013 saw a drastic downswing back to $1,100. The NASDAQ’s parabolic growth from 1995 to 2000 saw an 80 percent retracement in price!186 Talk about volatility.

“But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street—a community in which quality control is not prized—will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.”

—Warren Buffet

Be wary of parabolic growth. If you see an asset double in value in under a month, you should look for an exit point. Don’t get greedy. If you are in the green, look to exit once a reversal is in sight.

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