11 ms·

BTC bubbles

46 points by herrherr 13y ago

kiba 13y ago
What can we learn from this? You can see a “fair value” of around $20/BTC due to be hit in a few weeks, with perhaps a full mean reversion to $10/BTC. We now have a testable prediction. Let see if bitcoin actually falls to to 20 and 10 dollars per bitcoin within 4 weeks.
- Nursie 13y ago
  I'd almost be surprised if it doesn't hit that within a few weeks. Not necessarily as a stable value, but in the last few days it's bounced around madly between about 50 and 100 dollars. I think at this point it's fair to say that nobody has any idea of the real 'value' of a bitcoin, and mad speculation is still the order of the day.
  - stephencanon 13y ago
    > I think at this point it's fair to say that nobody has any idea of the real 'value' of a bitcoin. Nonsense. They have no use, not even as a status symbol or as a practical unit of exchange. The “real value of a bitcoin” is zero, and the fact that this isn’t obvious to everyone is, frankly, astonishing.
    - Nursie 13y ago
      I didn't want to say that because people get annoyed. I also didn't want to quote this from the article - "I have better things to do with my time than play with weird monopoly money" And say "I like the cut of this guy's jib", for similar reasons, but I guess now I have...
    - leoedin 13y ago
      But bitcoins do have a use. There's at least a few million dollars a month of value moving through Silk Road. However, it's not in the interest of users of BTC to use a wildly unstable currency. My prediction is that bitcoin will be replaced at some point by another crypto currency which fixes some of its major flaws - particularly its deflationary nature.
      - gnaritas 13y ago
        > particularly its deflationary nature Which IMHO is what will kill it; it's just a terrible feature for a currency.
        jpadkins 13y ago
        why?
        gnaritas 13y ago
        Currencies are meant for spending, money that's worth more tomorrow than today doesn't get spent, it gets hoarded by investors, it has a built in deflationary spiral. Bitcoin is a terrible currency. The ability for a fiat currency to be inflated is not a bug, it's a necessary feature. The supply of wealth to be traded in the world is not fixed, nor can the supply of the tool we use to exchange it be. That bitcoins are divisible completely misses the point that prices go up faster than they go down, i.e. they are sticky, and deflation is painful and feeds back into itself leading to a recession. Divisibility is not the correct solution, inflation is the correction solution, i.e. add more money rather than expect all prices to go down to adjust to the supply of a fixed currency.
      - shawabawa3 13y ago
        > particularly its deflationary nature. As far as I can tell, there's no real reason it has to stay deflationary. At some point there could be a consensus that inflation would be good for bitcoin and they could patch the client to start increasing the new bitcoins per block. tbh I don't know why it isn't inflationary, if it was you could remove/reduce transaction fees as miners would always have an incentive
        danielweber 13y ago
        At some point there could be a consensus In theory there could. In practice, the vast majority of the bitcoin users are speculators, and will fight tooth-and-nail against changing away from being deflationary.
    - mikeash 13y ago
      There's no such thing as the "real value" of anything, only what people will pay. And that is pretty obviously not zero.
      - lmgftp 13y ago
        Willingness to pay is someone's valuation. That's not the real value. That's not the inherent value. The inherent value of BTC is nill, except as a speculative commodity. I won't further comment on BTC since both sides are staunchly rooted in their positions.
        vrotaru 13y ago
        > That's not the inherent value. Show me your inherent-value-meter, or shut up. Simple, eh?
        rrrrtttt 13y ago
        People here are saying over and over again that there is no such thing as "real value". That's bullshit. Economists have great ways to measure real value. For example, for financial assets real value is net present value of future cash flows. For currencies, real value is parity purchasing power. (Bitcoin is not a currency in this sense.) Things have real value.
        vrotaru 13y ago
        > Things have real value. That's dodging the question. And in a rather clumsy way. The "use value" of things depends heavily on epoch, person, even fashion and weather. So what is exactly "real" in real value? > the present value of future cash flows You don't say! Sorry but a) future cash flows is an estimation at best b) the present value of future cash flows depends heavily on the circumstances of the valuator. On whether you have a debt to a mobster to pay, or an angry girlfriend to placate..
        mikeash 13y ago
        Why would you measure "real value" with future cash flows when cash itself clearly has no "real value" at all beyond toilet paper?
    - melvinmt 13y ago
      We have to be careful when we question the "real value" of specific assets as we may tumble in an essentialist philosophical debate where we have to question the "real value" of every single asset in the universe. There is no inherent difference between gold and bitcoins, they're both scarce assets, one in slightly higher demand than the other. The value of assets is mostly[1] determined by both supply and demand, and as long as the demand is higher than the (more or less) fixed supply of bitcoins, the value will always be > $0. [1] Please enlighten me if you know more ways of determining the value of assets.
    - DennisP 13y ago
      Given that they are used to buy things in the real world, I'd say their total value is the value of the goods exchanged, divided by the bitcoin velocity of money. Varying expectations of future value screw with the price though.
    - legutierr 13y ago
      What's the real value of anything?
      - Nursie 13y ago
        Five.
    - drewblaisdell 13y ago
      Bitcoin has no use? And after saying this, you find yourself qualified to comment on the "real value of a bitcoin"? Sometimes it is more valuable to accept what you do not know instead of pretending. Bitcoin may drop to $0 or bounce back to $250. I do not know, but I know why it made it this far and that is something that I would suggest you attempt to grasp before making any broad, unsubstantiated statements.
dragontamer 13y ago
When a worthwhile Futures market hits, then BTC will really stabilize. He's right. Without shorting, options, and future contracts... it becomes impossible for BTC to stabilize in the wake of media exposure. Add on to the fact that the majority of BTC users seem to be idiots (ie: they look at the price as some sort of indicator of BTC penetration, as opposed to more useful statistics), and you've definitely got a situation where bubbles will continuously form. Anyway, I don't necessarily think he's right. There will always be some function that fits some data... and he may have gotten lucky this time that data fits his model. Either way, it is certainly an interesting piece to read. And his model seems to have solid theory behind it.
- tudorizer 13y ago
  You are talking to the wrong kind on BTC users. Hopefully, most of this type of users are gone after the recent events. Aside from that, there's still a vibrant community of people who make useful stuff with BTC.
  - Nursie 13y ago
    Have you ventured over to bitcointalk? The speculators aren't in any danger of disappearing, no sir, this is just an opportunity to buy 'cheap' bitcoin and increase their holdings. Because obviously squirrelling away as much of it as possible will help it become a viable currency...
    - dragontamer 13y ago
      Indeed. But with a futures market, they will be able to speculate in both directions. Futhermore, businessmen who rely on the BTC <--> USD price will be able to buy futures, and be able to settle down on a future spot price on BTC. IE: A business expects to get say 10 BTC in 30 days... but wants the money in USD. So he wants to buy a contract to sell 10 BTC 30 days from now. It can even be in the form of call / put options. A vibrant speculative community will provide these businessmen with contracts. And then everyone benefits. Speculators will begin to add value to the market. As opposed to now, where all of them seem to be relying on the greater fool theory.
joshuahedlund 13y ago
Are prices only well described by log periodic power laws if market participants don't know they are well described by log periodic power laws, or does that make things more complicated?
- jeremyjh 13y ago
  I don't think that a bubble feels like a bubble to the participants driving it. I remember seeing this same phenomenon with gold prices a couple of years ago. So many people were adamant that "this time its different" even though we have seen gold spike and crash many dozens of times throughout history. Now that some of these people are losing lots of money in gold maybe their views change but it won't matter, next time will be same for the people driving it.
jerguismi 13y ago
There has been lately some legitimate-looking companies starting options-markets: http://forexmagnates.com/ig-groups-launches-bitcoin-binary-option/ http://forexmagnates.com/ig-groups-launches-bitcoin-binary-o... And also a new funded startup coming: http://siliconangle.com/blog/2013/04/11/coinsetter-the-newest-bitcoin-forex-seeks-a-niche-in-the-wild-market/ http://siliconangle.com/blog/2013/04/11/coinsetter-the-newes...
- tudorizer 13y ago
  Yeah. Coninsetter looks promising and the beta is around the corner.
steven777400 13y ago
Having not heard of this model before, I'm very surprised how tightly the curve fits, to the point of being sceptical (it's even got the "little" ups and downs" it seems). Traditionally, the idea with a bubble is that everyone (well, almost everyone) knows it's a bubble, but no one seems to know when it will pop or how far it will fall. Would this same model have fit the 2008 stock market collapse? Would it have accurately showed when and where the bottom was? Would this same model have fit the BTC curve as well if the dataset had started 100 or 200 days earlier or later? Just some curiousity about a model I'm hearing of for the first time.
- dragontamer 13y ago
  The issue with the 2008 bubble is that it was in Mortgaged Backed securities (and related derivatives). The Stock Market crashed because when the MBSes crashed, big banks were unable to give loans out to businesses. Without loans, many businesses were unable to pay their employees, etc. etc. The bubble was specifically in Credit Default Swaps, a derivative of the bond market. The problem here is that CDSes were untracked and unregulated. No one knew there was a bubble because there was no way to see the "fair price" of a CDS. Companies were making deals on CDSes in their backrooms, away from exchanges. When all of the companies involved in CDSes failed (because people failed to pay their subprime mortgage loans), it killed the banking industry... even those unrelated to the bubble. When your business partner goes bankrupt, you're also in danger. Again: there were lots of factories who couldn't get a loan to pay their workers... because the bank they relied on died in the whole crisis. This leads to factory closings, lots of people losing their job, and then a general Stock market crash. But again, Stocks weren't the bubble in 2008. The Credit Default Swaps in the bond market was the problem.
- thatthatis 13y ago
  2008 wasn't a bubble so to speak. It was driven by de-levering contagion. You'd do better to apply it to a 2001 tech index. The difference is a bubble is driven by greed, and "greater fool" behaviors turning to fear and panic selling. De-levering contagion is driven by a position going down triggering margin calls which necessitate selling other positions which drive down prices which furthers the cycle.
deleted 13y ago
[deleted]
- hobbes78 13y ago
  He's not calling the exchanges worthless, he's calling the exchanges presently offering shorts worthless. I actually didn't even knew there were BTC exchanges offering shorts...
arpp 13y ago
Technical Analysis is the Homeopathy of the financial world, just an "advanced" kind of scam using some basic maths... https://en.wikipedia.org/wiki/Random_walk_hypothesis https://en.wikipedia.org/wiki/Random_walk_hypothesis https://en.wikipedia.org/wiki/Nash_equilibrium https://en.wikipedia.org/wiki/Nash_equilibrium https://en.wikipedia.org/wiki/Efficient-market_hypothesis https://en.wikipedia.org/wiki/Efficient-market_hypothesis I though you guys were more smart than this.
snake_plissken 13y ago
This is awesome. Hide it from the fanatics on Bitcoin talk, or post it for them to strengthen the feed-back loops?

46 points by herrherr 13y ago

kiba 13y ago

What can we learn from this? You can see a “fair value” of around $20/BTC due to be hit in a few weeks, with perhaps a full mean reversion to $10/BTC. We now have a testable prediction. Let see if bitcoin actually falls to to 20 and 10 dollars per bitcoin within 4 weeks.

Nursie 13y ago
I'd almost be surprised if it doesn't hit that within a few weeks. Not necessarily as a stable value, but in the last few days it's bounced around madly between about 50 and 100 dollars. I think at this point it's fair to say that nobody has any idea of the real 'value' of a bitcoin, and mad speculation is still the order of the day.
- stephencanon 13y ago
  > I think at this point it's fair to say that nobody has any idea of the real 'value' of a bitcoin. Nonsense. They have no use, not even as a status symbol or as a practical unit of exchange. The “real value of a bitcoin” is zero, and the fact that this isn’t obvious to everyone is, frankly, astonishing.
  - Nursie 13y ago
    I didn't want to say that because people get annoyed. I also didn't want to quote this from the article - "I have better things to do with my time than play with weird monopoly money" And say "I like the cut of this guy's jib", for similar reasons, but I guess now I have...
  - leoedin 13y ago
    But bitcoins do have a use. There's at least a few million dollars a month of value moving through Silk Road. However, it's not in the interest of users of BTC to use a wildly unstable currency. My prediction is that bitcoin will be replaced at some point by another crypto currency which fixes some of its major flaws - particularly its deflationary nature.
    - gnaritas 13y ago
      > particularly its deflationary nature Which IMHO is what will kill it; it's just a terrible feature for a currency.
      - jpadkins 13y ago
        why?
        gnaritas 13y ago
        Currencies are meant for spending, money that's worth more tomorrow than today doesn't get spent, it gets hoarded by investors, it has a built in deflationary spiral. Bitcoin is a terrible currency. The ability for a fiat currency to be inflated is not a bug, it's a necessary feature. The supply of wealth to be traded in the world is not fixed, nor can the supply of the tool we use to exchange it be. That bitcoins are divisible completely misses the point that prices go up faster than they go down, i.e. they are sticky, and deflation is painful and feeds back into itself leading to a recession. Divisibility is not the correct solution, inflation is the correction solution, i.e. add more money rather than expect all prices to go down to adjust to the supply of a fixed currency.
    - shawabawa3 13y ago
      > particularly its deflationary nature. As far as I can tell, there's no real reason it has to stay deflationary. At some point there could be a consensus that inflation would be good for bitcoin and they could patch the client to start increasing the new bitcoins per block. tbh I don't know why it isn't inflationary, if it was you could remove/reduce transaction fees as miners would always have an incentive
      - danielweber 13y ago
        At some point there could be a consensus In theory there could. In practice, the vast majority of the bitcoin users are speculators, and will fight tooth-and-nail against changing away from being deflationary.
  - mikeash 13y ago
    There's no such thing as the "real value" of anything, only what people will pay. And that is pretty obviously not zero.
    - lmgftp 13y ago
      Willingness to pay is someone's valuation. That's not the real value. That's not the inherent value. The inherent value of BTC is nill, except as a speculative commodity. I won't further comment on BTC since both sides are staunchly rooted in their positions.
      - vrotaru 13y ago
        > That's not the inherent value. Show me your inherent-value-meter, or shut up. Simple, eh?
        rrrrtttt 13y ago
        People here are saying over and over again that there is no such thing as "real value". That's bullshit. Economists have great ways to measure real value. For example, for financial assets real value is net present value of future cash flows. For currencies, real value is parity purchasing power. (Bitcoin is not a currency in this sense.) Things have real value.
        vrotaru 13y ago
        > Things have real value. That's dodging the question. And in a rather clumsy way. The "use value" of things depends heavily on epoch, person, even fashion and weather. So what is exactly "real" in real value? > the present value of future cash flows You don't say! Sorry but a) future cash flows is an estimation at best b) the present value of future cash flows depends heavily on the circumstances of the valuator. On whether you have a debt to a mobster to pay, or an angry girlfriend to placate..
        mikeash 13y ago
        Why would you measure "real value" with future cash flows when cash itself clearly has no "real value" at all beyond toilet paper?
  - melvinmt 13y ago
    We have to be careful when we question the "real value" of specific assets as we may tumble in an essentialist philosophical debate where we have to question the "real value" of every single asset in the universe. There is no inherent difference between gold and bitcoins, they're both scarce assets, one in slightly higher demand than the other. The value of assets is mostly[1] determined by both supply and demand, and as long as the demand is higher than the (more or less) fixed supply of bitcoins, the value will always be > $0. [1] Please enlighten me if you know more ways of determining the value of assets.
  - DennisP 13y ago
    Given that they are used to buy things in the real world, I'd say their total value is the value of the goods exchanged, divided by the bitcoin velocity of money. Varying expectations of future value screw with the price though.
  - legutierr 13y ago
    What's the real value of anything?
    - Nursie 13y ago
      Five.
  - drewblaisdell 13y ago
    Bitcoin has no use? And after saying this, you find yourself qualified to comment on the "real value of a bitcoin"? Sometimes it is more valuable to accept what you do not know instead of pretending. Bitcoin may drop to $0 or bounce back to $250. I do not know, but I know why it made it this far and that is something that I would suggest you attempt to grasp before making any broad, unsubstantiated statements.

dragontamer 13y ago

When a worthwhile Futures market hits, then BTC will really stabilize. He's right. Without shorting, options, and future contracts... it becomes impossible for BTC to stabilize in the wake of media exposure. Add on to the fact that the majority of BTC users seem to be idiots (ie: they look at the price as some sort of indicator of BTC penetration, as opposed to more useful statistics), and you've definitely got a situation where bubbles will continuously form. Anyway, I don't necessarily think he's right. There will always be some function that fits some data... and he may have gotten lucky this time that data fits his model. Either way, it is certainly an interesting piece to read. And his model seems to have solid theory behind it.

tudorizer 13y ago
You are talking to the wrong kind on BTC users. Hopefully, most of this type of users are gone after the recent events. Aside from that, there's still a vibrant community of people who make useful stuff with BTC.
- Nursie 13y ago
  Have you ventured over to bitcointalk? The speculators aren't in any danger of disappearing, no sir, this is just an opportunity to buy 'cheap' bitcoin and increase their holdings. Because obviously squirrelling away as much of it as possible will help it become a viable currency...
  - dragontamer 13y ago
    Indeed. But with a futures market, they will be able to speculate in both directions. Futhermore, businessmen who rely on the BTC <--> USD price will be able to buy futures, and be able to settle down on a future spot price on BTC. IE: A business expects to get say 10 BTC in 30 days... but wants the money in USD. So he wants to buy a contract to sell 10 BTC 30 days from now. It can even be in the form of call / put options. A vibrant speculative community will provide these businessmen with contracts. And then everyone benefits. Speculators will begin to add value to the market. As opposed to now, where all of them seem to be relying on the greater fool theory.

joshuahedlund 13y ago

Are prices only well described by log periodic power laws if market participants don't know they are well described by log periodic power laws, or does that make things more complicated?

jeremyjh 13y ago
I don't think that a bubble feels like a bubble to the participants driving it. I remember seeing this same phenomenon with gold prices a couple of years ago. So many people were adamant that "this time its different" even though we have seen gold spike and crash many dozens of times throughout history. Now that some of these people are losing lots of money in gold maybe their views change but it won't matter, next time will be same for the people driving it.

jerguismi 13y ago

There has been lately some legitimate-looking companies starting options-markets: http://forexmagnates.com/ig-groups-launches-bitcoin-binary-option/ http://forexmagnates.com/ig-groups-launches-bitcoin-binary-o... And also a new funded startup coming: http://siliconangle.com/blog/2013/04/11/coinsetter-the-newest-bitcoin-forex-seeks-a-niche-in-the-wild-market/ http://siliconangle.com/blog/2013/04/11/coinsetter-the-newes...

tudorizer 13y ago
Yeah. Coninsetter looks promising and the beta is around the corner.

steven777400 13y ago

Having not heard of this model before, I'm very surprised how tightly the curve fits, to the point of being sceptical (it's even got the "little" ups and downs" it seems). Traditionally, the idea with a bubble is that everyone (well, almost everyone) knows it's a bubble, but no one seems to know when it will pop or how far it will fall. Would this same model have fit the 2008 stock market collapse? Would it have accurately showed when and where the bottom was? Would this same model have fit the BTC curve as well if the dataset had started 100 or 200 days earlier or later? Just some curiousity about a model I'm hearing of for the first time.

dragontamer 13y ago
The issue with the 2008 bubble is that it was in Mortgaged Backed securities (and related derivatives). The Stock Market crashed because when the MBSes crashed, big banks were unable to give loans out to businesses. Without loans, many businesses were unable to pay their employees, etc. etc. The bubble was specifically in Credit Default Swaps, a derivative of the bond market. The problem here is that CDSes were untracked and unregulated. No one knew there was a bubble because there was no way to see the "fair price" of a CDS. Companies were making deals on CDSes in their backrooms, away from exchanges. When all of the companies involved in CDSes failed (because people failed to pay their subprime mortgage loans), it killed the banking industry... even those unrelated to the bubble. When your business partner goes bankrupt, you're also in danger. Again: there were lots of factories who couldn't get a loan to pay their workers... because the bank they relied on died in the whole crisis. This leads to factory closings, lots of people losing their job, and then a general Stock market crash. But again, Stocks weren't the bubble in 2008. The Credit Default Swaps in the bond market was the problem.
thatthatis 13y ago
2008 wasn't a bubble so to speak. It was driven by de-levering contagion. You'd do better to apply it to a 2001 tech index. The difference is a bubble is driven by greed, and "greater fool" behaviors turning to fear and panic selling. De-levering contagion is driven by a position going down triggering margin calls which necessitate selling other positions which drive down prices which furthers the cycle.

deleted 13y ago

[deleted]

hobbes78 13y ago
He's not calling the exchanges worthless, he's calling the exchanges presently offering shorts worthless. I actually didn't even knew there were BTC exchanges offering shorts...

arpp 13y ago

Technical Analysis is the Homeopathy of the financial world, just an "advanced" kind of scam using some basic maths... https://en.wikipedia.org/wiki/Random_walk_hypothesis https://en.wikipedia.org/wiki/Random_walk_hypothesis https://en.wikipedia.org/wiki/Nash_equilibrium https://en.wikipedia.org/wiki/Nash_equilibrium https://en.wikipedia.org/wiki/Efficient-market_hypothesis https://en.wikipedia.org/wiki/Efficient-market_hypothesis I though you guys were more smart than this.

snake_plissken 13y ago

This is awesome. Hide it from the fanatics on Bitcoin talk, or post it for them to strengthen the feed-back loops?