By price (and tx volume) movement you mean rate of change, or just absolute price? And I'm not sure I understand what you mean by 'scaled so they sum up to the same area'. You mean scaled so they initially sum up?

I'm wondering if this is similar to an observation I also made: network growth seems to have slowed down, while price seems to have continued growing as fast before (at least until recently).

See, that's the talk I don't mind one bit. Why not ask it in the thread I made about the algo?

But to be clear: what are the junk results of the algo in your opinion? That it still didn't give a 'buy' signal? When we're actually back down to 330/340? Seems good to me.

EDIT: also, I had this argument with aminorex in the past at least once: not everyone talks his/her book. I have talked "against my own book" quite a few times in the past. The reason is really pretty simple: my own "book" is defined by relatively short term considerations. The threads / posts I like to make are about longer term speculation, so the two don't need to match.

Because it was completely off-topic, and quite clearly a loaded question.

So: content free (in the context of my thread), and trolling, ergo: deleted.

Doing fine, thanks

Still sitting on a ~1591 USD position... backtested, still no live signal. Don't worry, I'll update once that happens.

No, not really.

Selling might or might not be a good idea (based on your personal investment or trading strategy, together with your predictions of the market).

Panicking never is.

Good point, but: USD tx volume is more of an economic, i.e. fundamental metric. I specifically set out to look at the market valuation.

Market cap isn't really such a bad proxy for that... I'd argue that the biggest counter argument against using total_coins*price is that 'all mined' is not identical to 'all in use or being traded'. On the other hand, mining is a huge price factor, I'm sure everyone agrees. And the market cap definition based on total coins /does/ account for that. So perhaps the absolute mcap numbers are off, but the relative change should be reasonably well motivated...

Reason: there were 8 million new coins created out of thin air in the last 3+ years, and the market had to absorb them somehow (even if they are hoarded, at the time of their creation, their value was based on market value per unit, so someone who puts $1000 worth of coins into cold storage is effectively keeping that value in Bitcoin). Mcap does account for that, even if some initial number of coins is out of circulation/trading.

(Mostly) Content free? kinda.
Trolling? Not really.
=> not in danger of being removed

(But don't get too confident either.) <-- Wanted to add that last line to the title, but the character limit got in the way.


Alright. So we all like talking about daily Bitcoin price in here. Hourly even. Individual big buys or sells even. How the price rises to a new all-time high, and how it crashes afterwards.

No problem with that, this is the speculation subforum after all, and for those of us who trade those spikes, those values are relevant after all.

But it's also easy to forget the larger picture when doing so, and I notice an increasing number - even of "old hands" - are starting to declare this funny little cryptocurrency experiment failed already because of the bear market we are in for about a year now.

That's a bit premature maybe...


The goal

Let's look at the larger picture for a moment. Not the local price tops and bottoms, but at a large view of the market. Note: This is still market analysis (as opposed to looking at the fundamentals of the Bitcoin economy), but instead of focusing on the extreme values (that are exciting, but not all that important for Bitcoin as a whole), let's zoom out a bit...


Step #1: 'Market cap' instead of 'Price per unit / BTC'

Easy to forget, but important to note: Per unit price, i.e. USD per BTC as traded on a public market, matters for traders and for the value of your individual account, but is a poor representation of the 'total market' of Bitcoin. Market cap, i.e. current price times total number of bitcoins in existence, isn't perfect either (for example because of "lost" bitcoins, or those not being in circulation), but it is already a big improvement. The market now, at around 13.4 million BTC is a vastly different size than in 2011, at around 5 million BTC.


Step #2: Volume-weighted price, averaged over a reasonably long time span, instead of daily price spikes

Said it already: price highs and lows matter a lot for traders. Those who sold at previous peaks and bought back at the lows made a fortune. Those who bought at $1000 and sold at $300 lost one. But it doesn't accurately reflect the weight of buying and selling as a whole, the amount of coins bought and sold at those prices.

Yes, price briefly got near $1200 in 2013. Yes, price briefly fell back to $2 from $32 in 2011. But in either of those cases, only a relatively small number of coins (in relation to total volume) were traded at those prices. It makes no sense to think that the Bitcoin market lost half its value in a few days when price fell from $1200 to $600, and neither does it makes sense to think the Bitcoin market size (sustainably) increased by a factor of 32 when it rose from $1 to $32 in 2011 in a short amount of time.

This is, if you want, a reminder for both bulls and bears: don't think the spikes matter all that much. What matters is the larger trend, unless you are actively trading the extremes on a daily or weekly basis.


Putting it together...

So, let's look at the market capitalization of Bitcoin based on a volume-weighted average of the last 200 days. That's a bit more than half a year of "smoothing" the price, and it takes into account the trading volume of each price that enters the average, i.e. on a day with much trading, the price is weighted more for the final value of the average than on a day with less trading.


In the following two graphs, you are looking at the market cap of Bitcoin (the thick blue line), in millions of USD: total coins mined at the point of calculation times volume-weighted moving average of price over the last 200 days.


2011 to 2013 (MtGox data)




2013 to now (Bitstamp data)




What to conclude?

That's up to you, ultimately. You will note that we are currently "trending down", even in a smoothed view like the 200 day (volume weighted) average and the corresponding market cap. That's pretty bad, you have to admit... means Bitcoin is in a deep bear market (or: was in one. It's a delayed representation after all because of the 200 day lookback period).

However, you'll also note this is hardly the first time this happened: The 2011 bear market brought the "smoothed out" market cap down from its peak of ~70 million  USD to ~38 million USD, almost cutting the peak value in half. Compared to that, the current bear market is still rather gentle: from the peak of 8.4 billion USD to currently about 6.4 billion USD. Down about 25% from peak market cap as of now. Pretty bad, but hardly the "death of Bitcoin" some like to talk about.

(Note also: billion now, million back then.)

The above is, in a nutshell, why I can't really take the doomsday prophets all that serious that claim Bitcoin is dead and the crypto experiment is a failure. Maybe if the larger picture I presented here changes drastically, say, if the market cap falls back to below a billion USD, I'll start wondering if it is really the end for Bitcoin.

Until that happens (if it ever will), I think the same way of Bitcoin the way I thought of it when I learned about it in early 2013: It's a brilliant idea, a truly interesting social movement and experiment, and it has a real shot at making it. As long as you don't delude yourself in thinking its success is a "sure thing", it's worth keeping an eye on, and maybe even holding a few of those funny little coins. Just not so many (in relation to your total net worth) that any price drop makes you want to throw up - but that's warning that applies to investors in all markets.

---

A word on self-moderation

I used to dislike self-moderated topics, but I also dislike the rampant trolling that has become commonplace in here. This is the first self-moderated topic I ever opened, and I do so reluctantly. As a sort of  compromise, between keeping signal-to-noise in an acceptable range, and not stifling free expression of criticism, I will:

(a) Only remove posts that can uncontroversially be called "trolling". Example: JorgeStolfi's posts are not "uncontroversially troll posts" -  most seem to dislike them, but some (including me) see them as at least not completely devoid of any information. So posts like this won't be removed. Content-free posts troll posts on the other hand, with the only intent to stir up emotions, will be deleted. Example: fallllling's or his alts' panicky one liners, or notlambchop's pony memes.

(b) To allow for some accountability for my moderation, I will move all deleted posts into an unmoderated topic in the off-topic subforum. That way, if you really want to read what btctalk's finest have to say (and decide if I perhaps deleted something without justification), you're able to do so over there: 'Garbage can' thread for my self-moderated speculation subforum threads

Will post (as quote) those comments in here that I deleted from my other threads (usually in the Speculation subforum). The idea is to introduce some amount of accountability for the mod decisions in my threads...

Is this allowed in here, by the rules of 'off-topic'? Let me know if that's not the case.

Two words: Forex, and Visa.



Bitcoin is doing fine. The current per unit market value is in a bit of a slump. Not the first time this happened, and probably not the last time.

Solid post, agreed on all points I have an opinion on (That is, everything except the Truckcoin/Hyperstake remark. Don't know anything about those.)

EDIT: Unless 'consolation' is supposed to mean 'gloating'... but I don't think it was intended like that.

Thanks. Feel like an idiot for missing that.

Which would make it about quadratic growth. Interesting.

Limit order set to effectively act as a market order. Why? Because Bitstamp

Interesting thread. Thanks, for the thorough analysis, raystonn.

I guess you know the posts by Peter R., who is also tracking price/mcap as a function of network size under the metcalfe assumption (MA).

Here's one funny idea I had on this topic when I looked at it myself a while ago (it's not fleshed out yet, just did some imprecise calculatios "by hand" on this, so be forgiving please...)

When modeling price/mcap as a function of network size under MA, the empirically determined parameter is the exact coefficient that determines the ratio of network size to price.

Here's the idea I had... perhaps there need to be /two/ (largely unrelated) parameter sets: one for "bubble times", and one for "regular market time". It seems that price is strongly related to network size both in normal times and in bubble times, but with different parameters determining the exact price at the time.

Chosen on purpose. I only pretend to know what I'm doing. However, for most practical purposes (fucking hot female unicorns, technical trading), pretending to know and really knowing are virtually indistinguishable, or so I like to tell myself :P

EDIT: http://pbfcomics.com/253/

That's what I said... the 'S' shape (of slipperyslope, e.g.) is bounded growth, i.e. is convergent. Your function doesn't have a finite limit. It just goes to infinity rather slowly

Nice post & analysis, Trolololo. Following.

I made a similar observation earlier this month in Stephen Reed's thread, about what looked like an increasing time span between reaching the next order of magnitude in network size, but didn't follow up on it (shameless plug to my own post :D).


A question.

I'm not sure about the exact type of growth of your function. What you seem to be mapping is logarithmic growth (slow) on a log chart (fast). Stripped of its minor constants, your formula is of the form 10^ln(t) for time = t. ln(t) grows extremely slow over time, but the result is used as a positive, growing exponent.

It seems to fall somewhere between linear growth and exponential growth, and it isn't bounded either (like in Stephen's model). I was wondering if someone with more knowledge on functional growth could answer this once and for all for me, have been wondering about this for a while now. (EDIT: I'm wondering if it could be an instance of so called sub-exponential growth)


A critical remark.

While I personally, intuitively, find a price function with a declining growth rate (like yours) more plausible than the constant growth rate models that have been presented on this forum (i.e. the "loglinear models" you linked to as well), one problem still remains:

Price tends to "jerk around" all those models.

I remember that, late last year, when price exceeded even the loglinear model's predictions, some analysis was posted that suggested a superexponential price function to model BTC price.

Then came the first leg of the 2013/2014 correction, and suddenly the loglinear models were all the rage again.

Now, the correction continues, and you suggest (with good reasons, I agree) a model based on an below exponential growth assumption. But I'm afraid all it takes is another year of bear market (or perhaps, a sudden rally of huge proportions), and we need to re-adjust our assumption for what the "best" growth type for our model is...

Here's what I'm trying to say: I am using technical (i.e. historic price based) methods myself all the time for predicting price on the short term. However, I start to think that, on a long enough time scale, fundamentals govern the price function. So a model like yours (or Stephen's, or rpietila's), that are essentially an extrapolation from an (admittedly well fitted) function on the historic price data might come to its limits.

I am thinking that perhaps the only semi-reliable way to go about mapping the "long term trend" is Peter R.'s way: finding a proxy for network size, and then modeling expected price/mcap as a function of network size.

See for example here: https://bitcointalk.org/index.php?topic=68655.msg9059346#msg9059346

He still makes a number of assumptions (Metcalfe's law, for example), and in a way, his method only shifts the problem (because now we are trying to predict, i.e. extrapolate, network size), but at least his predicted numbers will rarely be so out of tune with reality as the pure time series models can be at times.