Bitcoin Forum

Economy => Economics => Topic started by: interfect on June 14, 2011, 08:16:18 AM



Title: Bitcoin as a Lesson in Economics
Post by: interfect on June 14, 2011, 08:16:18 AM
I think that Bitcoin trading is a great way to get into investment and day trading in general. The barriers to entry are low (have a GPU, or a friend in the know, or set up Dwolla), the market is small (so you can sometimes visibly see how your transactions affect price), and the market data is freely available from major exchanges. No 15-minute-delayed, pay-for-"Level 3" bullshit. You can see exactly what's going on in the market, and this lets you understand what things like market depth actually are before shelling out real money to access them.

On top of all that, Bitcoin is a great model market because Bitcoins themselves don't do anything. They're not going to report quarterly earnings or hire a new CEO. If the price changes, there's a relatively short list of things that could have caused it.

Thoughts? Any middle school teachers want to replace the Stock Market Game with Bitcoin trading?


Title: Re: Bitcoin as a Lesson in Economics
Post by: mmortal03 on June 14, 2011, 09:22:12 AM
I'm kinda using it this way to teach myself the day-trading ropes.


Title: Re: Bitcoin as a Lesson in Economics
Post by: Cluster2k on June 14, 2011, 09:29:15 AM
On top of all that, Bitcoin is a great model market because Bitcoins themselves don't do anything. They're not going to report quarterly earnings or hire a new CEO. If the price changes, there's a relatively short list of things that could have caused it.

It seems like an ideal place to practice manipulating a market.  If someone is guilty of pumping and dumping BTCs as we saw last Friday, who is anyone going to complain to?  Is it even illegal to manipulate a BTC market?


Title: Re: Bitcoin as a Lesson in Economics
Post by: hugolp on June 14, 2011, 09:40:22 AM
On top of all that, Bitcoin is a great model market because Bitcoins themselves don't do anything. They're not going to report quarterly earnings or hire a new CEO. If the price changes, there's a relatively short list of things that could have caused it.

It seems like an ideal place to practice manipulating a market.  If someone is guilty of pumping and dumping BTCs as we saw last Friday, who is anyone going to complain to?  Is it even illegal to manipulate a BTC market?

No.

But if this things keep happening the exchanges will auto-impose some rules. We have seen already big complains about the darkpools in MtGox and people moving to the Hill. The forum has changed the rules for people who registers to avoid troll-flooding to move the price. Etc...


Title: Re: Bitcoin as a Lesson in Economics
Post by: andes on June 14, 2011, 10:17:36 AM
The 20 dolar mark seems to be a sicological barrier for Bitcoin in June, I expect wild movements again very soon:

http://i.imgur.com/JBtxY.png

Anyone agrees?

(BTW I am totally agree with the first poster).


Title: Re: Bitcoin as a Lesson in Economics
Post by: mmortal03 on June 14, 2011, 10:29:04 AM
Speaking of day-trading, if you look at the 20 hour SMA envelope and the volume bars, it looks like the majority of people (or large holdings) tend to BUY when it moves ABOVE the envelope, and SELL when it moves BELOW the envelope. Am I crazy in thinking that the smart thing would be to do the opposite?  You know, that maybe people should be buying low and selling high?  Is there some general theory that on the contrary suggests that once a chart drops 10% lower than it's SMA, that it's about to drop even more so you beter sell, or is it simply fear in people causing this behavior?  Same goes on the other end of things. If you see it make a huge bounce, isn't it already too late to be buying?


Title: Re: Bitcoin as a Lesson in Economics
Post by: FreeMoney on June 14, 2011, 10:49:43 AM
Speaking of day-trading, if you look at the 20 hour SMA envelope and the volume bars, it looks like the majority of people (or large holdings) tend to BUY when it moves ABOVE the envelope, and SELL when it moves BELOW the envelope. Am I crazy in thinking that the smart thing would be to do the opposite?  You know, that maybe people should be buying low and selling high?  Is there some general theory that on the contrary suggests that once a chart drops 10% lower than it's SMA, that it's about to drop even more so you beter sell, or is it simply fear in people causing this behavior?  Same goes on the other end of things. If you see it make a huge bounce, isn't it already too late to be buying?

You are crazy. The same number of coins are bought below the average as are sold below the average. Think about it.


Title: Re: Bitcoin as a Lesson in Economics
Post by: mmortal03 on June 14, 2011, 08:02:57 PM
Speaking of day-trading, if you look at the 20 hour SMA envelope and the volume bars, it looks like the majority of people (or large holdings) tend to BUY when it moves ABOVE the envelope, and SELL when it moves BELOW the envelope. Am I crazy in thinking that the smart thing would be to do the opposite?  You know, that maybe people should be buying low and selling high?  Is there some general theory that on the contrary suggests that once a chart drops 10% lower than it's SMA, that it's about to drop even more so you beter sell, or is it simply fear in people causing this behavior?  Same goes on the other end of things. If you see it make a huge bounce, isn't it already too late to be buying?

You are crazy. The same number of coins are bought below the average as are sold below the average. Think about it.

I don't doubt what you are claiming, but that doesn't answer my question.  Look at the volume bars and when they are green and when they are red in relation to the SMA window.  Are you saying that the coloring of the volume bars doesn't mean anything?


Title: Re: Bitcoin as a Lesson in Economics
Post by: enmaku on June 14, 2011, 08:09:43 PM
Speaking of day-trading, if you look at the 20 hour SMA envelope and the volume bars, it looks like the majority of people (or large holdings) tend to BUY when it moves ABOVE the envelope, and SELL when it moves BELOW the envelope. Am I crazy in thinking that the smart thing would be to do the opposite?  You know, that maybe people should be buying low and selling high?  Is there some general theory that on the contrary suggests that once a chart drops 10% lower than it's SMA, that it's about to drop even more so you beter sell, or is it simply fear in people causing this behavior?  Same goes on the other end of things. If you see it make a huge bounce, isn't it already too late to be buying?

I think what the previous poster was implying was that if someone sells 1 BTC successfully, thus adding a sale to the volume, someone else had to have bought 1 BTC from them, thus adding a purchase to the volume. In order for anyone to buy under the envelope there have to be people to sell under the envelope. Eventually those willing to sell beneath the envelope disappear and the price climbs back up. Econ 101.

Oh and if anyone finds it to be a useful tool, I just whipped up a web site with a handy little reference bar (and a JSON API feed if anyone wants to try their hand at bot-making) that shows the 4-hour SMA, standard deviations and envelopes at 1 and 2 standard deviations from center. http://bitcoinreference.com

Enjoy  ;D


Title: Re: Bitcoin as a Lesson in Economics
Post by: bittersweet on June 14, 2011, 08:28:10 PM
The 20 dolar mark seems to be a sicological barrier for Bitcoin in June, I expect wild movements again very soon:

http://i.imgur.com/JBtxY.png

Anyone agrees?

(BTW I am totally agree with the first poster).

Hey, I'm a fortune-teller too! But my lines tell me something very different:

http://img689.imageshack.us/img689/3157/lines.gif

Anyone agrees?


Title: Re: Bitcoin as a Lesson in Economics
Post by: enmaku on June 14, 2011, 08:41:00 PM
The 20 dolar mark seems to be a sicological barrier for Bitcoin in June, I expect wild movements again very soon:

http://i.imgur.com/JBtxY.png

Anyone agrees?

(BTW I am totally agree with the first poster).

Hey, I'm a fortune-teller too! But my lines tell me something very different:

http://img689.imageshack.us/img689/3157/lines.gif

Anyone agrees?

You're assuming the base value of 1 BTC is perfectly linear with respect to your log scale, which is probably not true. The system is a bit more complex than that but one of the primary forces behind the value of any currency is scarcity. The number of users joining the network is growing at a significantly faster rate than there are bitcoins being mined, which is to be expected what with mining being roughly linear (~7200 new BTC daily) and adoption being exponential. While log scales often make the rate of increase in exponential systems easier to look at, there are often trends so exponential that they graph as an exponential curve even on a log scale. The only way to make your line perfectly straight is to adjust your log scale to match the underlying equation exactly - and if anyone knew that equation he or she would immediately use it to become rich and thereby change it :)

I agree with andes, actually. The $31 peak we had was clearly a speculative bubble as the values within were well outside of practically any reasonable envelope you can construct. We had our bubble, we had our correction and now we're about back where we started.


Title: Re: Bitcoin as a Lesson in Economics
Post by: AyeYo on June 14, 2011, 08:57:41 PM
On top of all that, Bitcoin is a great model market because Bitcoins themselves don't do anything. They're not going to report quarterly earnings or hire a new CEO. If the price changes, there's a relatively short list of things that could have caused it.

It seems like an ideal place to practice manipulating a market. 

That's really all it's useful for, or perhaps for being an alternative to a casino.

OP, if you're looking to get into daytrading, then open up a demo account with Thinkorswim or Trade Station.  If you're interested in currencies then open up a demo account with FXCM or OANDA.  The accounts are free and easy to setup.  You practice with an actual data feed using the broker's actual trading platform.

These Bitcoin exchanges are a complete joke and nothing like trading a real market.


Title: Re: Bitcoin as a Lesson in Economics
Post by: mmortal03 on June 14, 2011, 09:44:39 PM
Speaking of day-trading, if you look at the 20 hour SMA envelope and the volume bars, it looks like the majority of people (or large holdings) tend to BUY when it moves ABOVE the envelope, and SELL when it moves BELOW the envelope. Am I crazy in thinking that the smart thing would be to do the opposite?  You know, that maybe people should be buying low and selling high?  Is there some general theory that on the contrary suggests that once a chart drops 10% lower than it's SMA, that it's about to drop even more so you beter sell, or is it simply fear in people causing this behavior?  Same goes on the other end of things. If you see it make a huge bounce, isn't it already too late to be buying?

I think what the previous poster was implying was that if someone sells 1 BTC successfully, thus adding a sale to the volume, someone else had to have bought 1 BTC from them, thus adding a purchase to the volume. In order for anyone to buy under the envelope there have to be people to sell under the envelope. Eventually those willing to sell beneath the envelope disappear and the price climbs back up. Econ 101.


Thanks, enmaku, I completely get that. I think what I originally said must be the case, then, that more people get fearful or urgent at the edges of the SMA envelope, and then make questionable trades.  The other half of the equation is, in fact, FreeMoney's point, which is that there must always be others on the other side of that volume buying it up or selling it off. 

I'm sure this is all Econ 101, but as far as the color of the volume bars, though, I must not be clear on what they represent and need to read up.

This page points out what FreeMoney was saying: http://www.swing-trade-stocks.com/stock-chart-volume.html

"Mistakenly, some traders think that stocks that are "up on high volume" means that there were more buyers than sellers, or stocks that are "down on high volume" means that there are more sellers than buyers. Wrong! Regardless if it is a high volume day or a low volume day there is still a buyer for every seller."

So, a large red bar simply means it was down on high volume, and a large green bar simply means it was up on high volume?


Title: Re: Bitcoin as a Lesson in Economics
Post by: andes on June 15, 2011, 10:07:29 AM
The calm before the storm??   :o

http://i.imgur.com/XkCA6.png


Title: Re: Bitcoin as a Lesson in Economics
Post by: bittersweet on June 15, 2011, 10:40:44 AM
The calm before the storm??   :o

http://i.imgur.com/XkCA6.png

It could go the other way! :o

http://img577.imageshack.us/img577/1860/lolwj.gif


Title: Re: Bitcoin as a Lesson in Economics
Post by: andes on June 15, 2011, 10:54:15 AM
It could go the other way! :o

http://img577.imageshack.us/img577/1860/lolwj.gif
LOL!

More seriously, why dont we share our long term projections for the year? I count on bitcoin following a geometric growth this year, roughly doubling its value each month.

This is my hope:
June $16
July $32
Aug $64
Sept $128
Oct $256
Nov $512
Dec $1024
Jan $2048
Feb $4096  (that is a market cap of roughly 28 billions)

I think this should be the natural growth of a new thing that spreads virally, like a chain raction. I know its the simplest of projections, but I want to start from somewhere.

Of course if we stumble into any problem, this could be slower. If something suddenly helps bitcoin, it could be faster.

Any other projections out there?


Title: Re: Bitcoin as a Lesson in Economics
Post by: AyeYo on June 15, 2011, 01:35:01 PM
I'm sure this is all Econ 101, but as far as the color of the volume bars, though, I must not be clear on what they represent and need to read up.

Please stop calling it economics.  This has NOTHING to do with economics.  trading != economics
Economics is about the operation of... surprise surprise... economies.  Trading is both finance and... trading, not economics.

Too many people on this board are confusing financial markets with an economy.


Title: Re: Bitcoin as a Lesson in Economics
Post by: Basiley on June 15, 2011, 01:40:42 PM
WWII as lesson in politology ? 911 as lesson in social engineering/crowd control ?


Title: Re: Bitcoin as a Lesson in Economics
Post by: ryepdx on June 15, 2011, 07:22:16 PM
More seriously, why dont we share our long term projections for the year? I count on bitcoin following a geometric growth this year, roughly doubling its value each month.

What's your basis for believing this? Past performance is not an indicator of future growth...


Title: Re: Bitcoin as a Lesson in Economics
Post by: goldcd on June 16, 2011, 12:16:24 AM
I'm sure this is all Econ 101, but as far as the color of the volume bars, though, I must not be clear on what they represent and need to read up.

Please stop calling it economics.  This has NOTHING to do with economics.  trading != economics
Economics is about the operation of... surprise surprise... economies.  Trading is both finance and... trading, not economics.

Too many people on this board are confusing financial markets with an economy.

First post I've seen on the forum I can 100% agree with.
Traders are the people who seemingly make money, until the universal truths of economics come down and pound the be-jeezus out those still fighting the fight when reality turns up.
Now Economists rarely get rich and neither do the traders that ignore economics. Ideally you want to be a trader that nimbly cashes in *just* before reality kicks in.


Title: Re: Bitcoin as a Lesson in Economics
Post by: andes on June 16, 2011, 02:53:52 AM
What's your basis for believing this? Past performance is not an indicator of future growth...
I gave my resons below in the same post: Viral adoption for the following months.


Title: Re: Bitcoin as a Lesson in Economics
Post by: muad_dib on June 16, 2011, 10:28:10 PM
I'm sure this is all Econ 101, but as far as the color of the volume bars, though, I must not be clear on what they represent and need to read up.

Please stop calling it economics.  This has NOTHING to do with economics.  trading != economics
Economics is about the operation of... surprise surprise... economies.  Trading is both finance and... trading, not economics.

Too many people on this board are confusing financial markets with an economy.

well if you consider bitcoin as a currency then yes, you are right.

But I see it more like a commodity, at least for now.


Title: Re: Bitcoin as a Lesson in Economics
Post by: AyeYo on June 16, 2011, 10:37:35 PM
I'm sure this is all Econ 101, but as far as the color of the volume bars, though, I must not be clear on what they represent and need to read up.

Please stop calling it economics.  This has NOTHING to do with economics.  trading != economics
Economics is about the operation of... surprise surprise... economies.  Trading is both finance and... trading, not economics.

Too many people on this board are confusing financial markets with an economy.

well if you consider bitcoin as a currency then yes, you are right.

But I see it more like a commodity, at least for now.


It doesn't matter what it is.  He's talking about trading strategy, chart reading, techinical analysis, etc.  That stuff has NOTHING to do with economics.


Title: Re: Bitcoin as a Lesson in Economics
Post by: iya on June 16, 2011, 11:36:51 PM
I'm sure this is all Econ 101, but as far as the color of the volume bars, though, I must not be clear on what they represent and need to read up.

Please stop calling it economics.  This has NOTHING to do with economics.  trading != economics
Economics is about the operation of... surprise surprise... economies.  Trading is both finance and... trading, not economics.

Too many people on this board are confusing financial markets with an economy.

well if you consider bitcoin as a currency then yes, you are right.

But I see it more like a commodity, at least for now.


It doesn't matter what it is.  He's talking about trading strategy, chart reading, techinical analysis, etc.  That stuff has NOTHING to do with economics.

Isn't that statement a little strong? Maybe we just have different definitions of economics.
Trading is always about anticipating supply and demand and in many cases these depend very strongly on macroeconomics, e.g. currencies, stock indices, oil.
Technical trading reduces "technical" market inefficiencies, but just like fundamental trading it steers prices to better reflect reality.