bitcoin and exponential growth

[fergalish]

Hi, I just made a graph of the data from bitcoincharts.com for MtGox USD, taking all 6-hourly data since their records begin. Bitcoin seems to go through phases of exponential growth, which probably means that it spreads virally through a new class of user before saturating its presence in that group. I had a pet theory a while ago that each new phase of expansion of bitcoin would always be slower than the last, but this latest increase to $65 is actualy faster than the previous two. However it is significantly slower than the June 2011 bubble, which saw the price double almost 3 times as fast as it is doubling today.

http://imgur.com/L3raefv

For those that don't know, exponential expansion indicates that, on average, every entity participating in some network is bringing in another entity in some fixed time. It could be rabbits breeding, or cells dividing in a foetus. From 1 cell or rabbit, you get two. From 2, you get 4. From 4, 8. And so on. Each doubling occurs in the same time.

Right now, bitcoin price is doubling every 33 days or so. If this were to keep up (which it won't, I'm certain) until year end, bitcoins would be worth about $16k each, and market cap would be about $200 billion. However, each of the previous exponential expansions lasted typically about one or two months each. Which would suggesting we're near the end of this one, assuming no externalities to disrupt the trend (like global banking collapse).

[Timo Y]

Nice "bigger picture" analysis.

There are a lot of bitcoin critics who say that exponential growth is always bad. I disagree.

Exponential growth could signify a bubble, or it could simply signify a spurt of increased adoption.

[Questing]

There are alot of good examples of items going exponential in this modern age. Music bands can boom in an instant. Youtube, facebook and text messages where taken up by people on an exponential scale. Iphones and email are also great examples. But there are thousands more cases of items going "viral", as the slang expresses.
Great post fergalish. I think you will get some good feedback from this one.

Lets hope bitcoins hit critical mass, and go viral

[fergalish]

I updated the graph with another interesting curve. Bitcoin first hit the news in 2011 with a couple of slashdot and wired posts. So if we take from there to today, and fit an exponential, we get a doubling every 150 days or so.  So with this hindsight it's clear to see that the June'11 bubble was truly a bubble. Growth since then has been intermittent but constant over the long term. I'm not one to speculate, but the graph suggests bitcoins bought today will be worth 4 times as much in 12 months.

http://imgur.com/Hs6zMoi

@timo: I wouldn't say exponential growth is necessarily bad, but it is certainly always unsustainable. Perhaps that's what the bitcoin critics refer to.

[klee]

@OP can you please embed the image in the forum? The firewall at my job blocks imgur..

Thank you in advance!

[fergalish]

@OP can you please embed the image in the forum? The firewall at my job blocks imgur..

Thank you in advance!

I would, but I don't know how... I'm sure it's really easy. Can anyone else provide please?

[klee]

@OP can you please embed the image in the forum? The firewall at my job blocks imgur..

Thank you in advance!

I would, but I don't know how... I'm sure it's really easy. Can anyone else provide please?

Damn...

[ColdHardMetal]

[dancupid]

If you connect all the bottom prices you get an exponential growth of the bottom price doubling every 4 months or so - it's almost certain that this line will be tested again sometime in the future.
It need not necessarily be via a crash, maybe just a period of relative stability (corrections seem to be times of stability - I suspect this applies to most commodities)

[fergalish]

<snip>

Damn... that easy, huh. Just click on "image". Thx.

[jwzguy]

If you connect all the bottom prices you get an exponential growth of the bottom price doubling every 4 months or so - it's almost certain that this line will be tested again sometime in the future.
It need not necessarily be via a crash, maybe just a period of relative stability (corrections seem to be times of stability - I suspect this applies to most commodities)

Most commodities don't come with a massive distributed payment system built in.

[chriswen]

Interesting and it ties back to litecoin.  Litecoin had quite a big up and time really fast.

But bitcoins down might take a little longer.

[BTC Books]

Hi, I just made a graph of the data from bitcoincharts.com for MtGox USD, taking all 6-hourly data since their records begin. Bitcoin seems to go through phases of exponential growth...

You may be re-inventing Elliott Wave Analysis.

[fergalish]

Howdy, I've created another graph showing the recent fiasco.

In the new graph you can see that there was a steady exponential growth for two months from mid-january to mid-march.

Then cyprus went beserk, leading to an immediate and crazy exponential period with a doubling every 11.5 days! To make it clear, this doubling was even faster than the June 2011 bubble. See the linked post for the image showing that.

So, I can offer a hypothesis. When the Cyprus crisis went public, many people thought "Ahh, Cypriots are going to be buying bitcoins, ahhhh, all of Europe will want to be buying bitcoins, ahhhh, the whole world will want to buy bitcoins."

So speculators saw a chance and pushed the price way way up.

I happened to read an article a while ago which stated something like Cypriots, and the whole world, never did go crazy buying bitcoins after all(can't remember where). So this always was (as many many people predicted) just a speculative bubble. I guess MtGox lag and possible DDOS didn't help.

The good news is that we've more-or-less returned to a longer term trend. In fact, if the Cyprus crisis and subsequent bubble hadn't happened, but the Jan-Mar trend had continued, we'd be right where we are now.

For reference, you can also see the long term trend which has been holding since roughly Jan 2011.