Monthly average USD/bitcoin price & trend

[BitchicksHusband]

https://docs.google.com/spreadsheet/ccc?key=0ArD8rjI3DD1WdGhDN3FBWFptTlZTREN0cFkxZ3JHTnc

This spreadsheet is my attempt to fit a logistic function to
the bitcoin price history and thus predict its future.
See Wikipedia http://en.wikipedia.org/wiki/Logistic_function

Because the initial phase of the logistic curve is exponential, I
found that a wide variety of maximum bitcoin prices could
reasonably match the price history. What is interesting is that
the resulting family of curves revealed that the very rapid
growth of bitcoin prices will not last more than a few more
years.

I configured the calculations to accept a guess as to what the
maximum bitcoin price in $US will be. I tried four values from
$40000 to $5000000. For each maximum bitcoin price, I
manually adjusted the starting X value and adoption period so
that the logistic curve passed through the July 7 2010 price and
also passed through the November 11, 2013 price.

The resulting adoption periods range from 10.3 years for
the $40000 max price to 13.6 years for the $5000000 max
price. The logistic function becomes linear at the adoption
halfway point and then becomes exponentially decreasing.
In the case of a $1000000 bitcoin price, the exponential
growth stops in 2017.

Note that the logistic function is fit to the price curve and
models the behavior of speculators, not the underlying bitcoin
economy - which I suppose may take 20-30 years to become
fully adopted, e.g. replace precious metals and fiat currencies.
Likewise, even after full adoption, bitcoin prices will continue
to grow as the underlying bitcoin economy grows.

Here is the logistic price curve supposing that bitcoin reaches a maximum price of $1000000.
The Y axis is the Log 10 of the price.

So on these graphs, the right side represents:

1×10^x where x is the number.

So:

6=$1,000,000
5=$100,000
4=$10,000
3=$1,000
2=$100
1=$10
0=$1
-1=$.10

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[SlipperySlope]

Nice graphs, thank you. But is there a reason you selected Mt.Gox opening as the starting point and reject the notion that bitcoin was trading OTC for 1.5 years at an essentially flat rate?

The reason is merely the convenience of the data series that I downloaded from bitcoincharts.com.

I would guess that changing the starting point would not change the conclusion much - that if indeed bitcoin prices can be modeled according to an innovation adoption logistic function, then the log growth of the past three years may continue for two to four more years before rapidly slowing down. My analysis, if correct, does not say much about what the maximum price might be, but it does say to hurry up and invest now if one's tactic is buy and hold.

[kdrop22]

So on these graphs, the right side represents:

1×10^x where x is the number.

So:

6=$1,000,000
5=$100,000
4=$10,000
3=$1,000
2=$100
1=$10
0=$1
-1=$.10

Yes that is correct, it is a log of the price on the Y axis.

[BTC_GHD]

Ah, it's nice to see the growth of BTC. Got to love them!

[rpietila]

New datapoints used, see OP!

[dserrano5]

Could we have quarterly vertical lines? It's difficult to pinpoint the exact moment we "will" reach $1000 .

[rpietila]

Could we have quarterly vertical lines? It's difficult to pinpoint the exact moment we "will" reach $1000 .

Sure, since I am not the one doing the charts anyway

Currently it seems to be postponed until May 2014...

No seriously, the value of this analysis is to give you ideas on when we are ahead or behind the trend. Objectively, not based on handdrawings. For example, my decision to time the selling last September was stupid, since the trendline was so much behind that any downside was very unlikely. As I did not have imminent need for the money, I better had waited and sold for example now, as we are ahead the trend (and at triple the price!).

[Zangelbert Bingledack]

In my understanding, number of bitcoin users now is only 350,000, less than a million at least.

When it reaches 100 million, we are still in early adopter phase in global scale.

It is very important to realize that all growth has its limits, and the limit for bitcoin growth is that it replaces all other liquid wealth. That would lead the purchasing power to be in several million$ range. A more conservative scenario, that of replacing gold, would put the price at $300k/BTC.

It's still at least a 1500-bagger

Good brainwash - $300k is now "conservative" as Chamath estimated $0.5-$1M... 

Hehe, and people on reddit call each other insane for predicting $1000 by 2014. lol. Some clearly haven't grasped the enormity of what is hitting them yet.

Totally. Did you see this post today? http://www.reddit.com/r/Bitcoin/comments/1qetkx/why_are_so_many_people_here_confident_that/

[Zangelbert Bingledack]

Great graphs, rpietila, molecular, and SlipperySlope. I don't know how I missed this thread.

SlipperySlope's graph adds an interesting angle: that we will see mainstream adoption get into full-swing in around 2-4 years. Almost as fun as considering the price growth is considering where Bitcoin will be qualitatively at each order of magnitude.

Mainstream adoption of Bitcoin suggests a radically changed world...in 2-4 years. (Holy shit!)

Also, I have a question for everyone to consider. Suppose Bitcoin never became popular in China. Suppose all investment and adoption stayed limited to the US, Europe, and wherever else it had significant uptake through 2012. We'd still be using this same exponential chart, correct?

If so, wouldn't that mean the addition of China (and later other countries) will have to add an extra doubling or so? It wouldn't be much in the grand scheme of things since it only takes a few months to double anyway, but it might fast-forward the graph by a couple of months, and more or less abruptly starting recently, given the dramatic upsurge in action from China. I know this distracts greatly from the purity of the math here, but then again those additions aren't nothing.

[SlipperySlope]

SlipperySlope's graph adds an interesting angle: that we will see mainstream adoption get into full-swing in around 2-4 years. Almost as fun as considering the price growth is considering where Bitcoin will be qualitatively at each order of magnitude.

Mainstream adoption of Bitcoin suggests a radically changed world...in 2-4 years. (Holy shit!)

I believe that bitcoin speculation is way ahead of the underlying bitcoin economy. What will radically change in 2-4 years accordingly, is mainstream perceptions and expectations.

Also, I have a question for everyone to consider. Suppose Bitcoin never became popular in China. Suppose all investment and adoption stayed limited to the US, Europe, and wherever else it had significant uptake through 2012. We'd still be using this same exponential chart, correct?

The family of logistic curves I made, and the log growth chart presented by rpietila, probably do not change much if we leave off the last six months of data. The addition of China, and later other countries yield a higher maximum bitcoin price, extending the exponential phase of the logistic curve, not necessarily changing its slope.

[rpietila]

I believe that bitcoin speculation is way ahead of the underlying bitcoin economy. What will radically change in 2-4 years accordingly, is mainstream perceptions and expectations.

That is the role of speculation. Bitcoin is still world's most undervalued investment. The exponential value appreciation phase will last until bitcoin's price is on the same ballpark as its future value (not present value).

I think even $10,000 bitcoins now are very affordable. Future looks much brighter than in March when I estimated the fair price as $2200.

You miss the gains if you base your estimates on what is available now. It is possible that bitcoin bubble will consummate at about the same time as the early adoption turns into mass adoption. So it was with Internet and Internet stocks in 1999.

[MaxBTC1]

Nice graph!

Thanks

[mccoyspace]

Great thread. Thanks to all the participants. Is the first post being updated to reflect OP's current thoughts/data?
just trying to identify the "latest info"

[rpietila]

Yes, the most recent changes to the OP were from today:

- dree12's data used (more accurate volume weighting, did not change a lot)
- as a result, redrawn trendline with equation: y = 0,092x - 2,9124 ;  R² = 0,91466 (x=1 <=> Jan2009).

Interesting thing is that the trendtargets were revised upwards a little. Despite this, the current price is higher than the trendtarget. It does not mean that you should sell or even abstain from buying. Care should be taken when the price significantly overshoots the target. The April high was 3.6x the target.

- If there is a rise to a high plateau above the trendline, the trendline will auto-correct higher + rise towards the price at 23% monthly pace.
- If there is an intermediate top, there will by definition be a correction below the trendline also, and this will be the premier entry point.

Trendtarget for Nov2013: 328
Trendtarget for Dec2013: 404

[Zangelbert Bingledack]

The family of logistic curves I made, and the log growth chart presented by rpietila, probably do not change much if we leave off the last six months of data. The addition of China, and later other countries yield a higher maximum bitcoin price, extending the exponential phase of the logistic curve, not necessarily changing its slope.

Right, I forgot this wasn't the speculation subforum, but for spec purposes it seems to mean we can expect nearer-term prices to be pushed a few weeks or months to the right. That is, a bit higher price targets (maybe between 30% and 100% higher) than what the trend would otherwise predict for this time.

[bitrider]

I love this thread too. This where my mind has been for many months now, and it is great to see some better numbers being put on the long-term charts with better data (by better minds). Thank you.

Many of you have seen this before, but thought I would post so that new readers to this thread might have an understanding of some of the underlying terminology and theory for the longer-term adoption cycle.



and to give a sense of where we might be in this cycle and expected time-frames (now very early in the "trigger" phase):



I expect that the "inflated expectations" phase will correspond (closely, but not simultaneously) to the extreme peaks in valuation that rpietila has been hinting about. (Since all current pricing is based on expectations of future value). Followed by a collapse back to much lower valuations, followed by relative stabilization at the more sustainable 300K levels as massive adoption kicks in.

I wonder how you think this may align with Slippery's excellent analysis?

[xxnewbiecoinerxx]

Could we have quarterly vertical lines? It's difficult to pinpoint the exact moment we "will" reach $1000 .

Sure, since I am not the one doing the charts anyway

Currently it seems to be postponed until May 2014...

No seriously, the value of this analysis is to give you ideas on when we are ahead or behind the trend. Objectively, not based on handdrawings. For example, my decision to time the selling last September was stupid, since the trendline was so much behind that any downside was very unlikely. As I did not have imminent need for the money, I better had waited and sold for example now, as we are ahead the trend (and at triple the price!).

Confused here . The trendline shows that oct/nov price ise around 300 USD/BTC? You say you say that we are at triple over the trend price? I do not understand that part. Are you predicting that the price is gonna fall?

[bitrider]

He just meant triple the price from when he sold till now.

[SlipperySlope]

I added a table to the results page of my shared spreadsheet. Given your own guess as to the maximum bitcoin price - by which I mean the price when bitcoin is fully adopted by financial speculators, the corresponding logistic adoption curve predicts these prices ...



You can view, and copy for your own editing, the bitcoin logistic spreadsheet here:
https://docs.google.com/spreadsheet/ccc?key=0ArD8rjI3DD1WdGhDN3FBWFptTlZTREN0cFkxZ3JHTnc

Four sheets are included: commentary, calculations, chart, and results. The calculations are performed using the $1000000 maximum price, but the parameters for the other three cases are in the results sheet.

[rpietila]

I expect that the "inflated expectations" phase will correspond (closely, but not simultaneously) to the extreme peaks in valuation that rpietila has been hinting about. (Since all current pricing is based on expectations of future value). Followed by a collapse back to much lower valuations, followed by relative stabilization at the more sustainable 300K levels as massive adoption kicks in.

Cool post.

What kind of money we are talking about? Bitcoin is growing so quickly and holders tend to hold tightly that the ratio of (market cap growing)/(new money invested) is a multiple of 1.

I have actually estimated this using data from exchanges starting 2012. The most relevant calculation I made is using combined Bitstamp + Gox market volume, multiplied by 33% (assuming that on average 33% of the volume is virgin money and the rest is trading) and relating this to the increase in market cap in the given time. The ratio was 3.9. This means that in order to reach $300k (corresponding to 4.5T market cap), a little bit more than 1,000 billion dollars need to exit the current system and demand conversion to bitcoins.

If it happens too quickly, not even 1,000 billion can enter*. In extreme times such as 1.1.-8.4.2013 ($13.5-143 with six 20-30% flashcrashes but no deeper corrections or negative weeks), the ratio can reach 10. This was even after modifying the virgin money share to 60%.

A corollary is that the current bitcoin holders receive 1,000 billion USD. Miners don't count since they amortize their investment but not much net gain. Traders don't count since they cancel each other with some winning, others losing (in practice most of this money goes to active traders because they lose so much bitcoins in the process, the net loss of bitcoins being large in comparison to the net gain in dollarz).