Monthly average USD/bitcoin price & trend

[AnonyMint]

First, I am not clear yet if price must return to the calculated trendline which assumes linearity over log base 10 apparently. I need to do some curve fitting on past bubble manias to see if the exponential rate remained constant during the blow off phase. Bitcoin appears to have reached the maturity phase (no longer in the stage where those who were holding as a wildly speculative option and a very small % of their net worth and were working hard on it as a currency) and is preparing to enter the blow off stage when the dumb masses come rushing in.

The Austrian theory of how a commodity becomes money is that first it is widely sought and held as a commodity, then this naturally leads to it being widely acceptable as medium-of-exchange.

The problem Bitcoin has is that it is not held for being a commodity that it isn't, rather for the promise of being a currency in the future. It puts the cart before the horse, and its intrinsic value as a commodity relies on the medium-of-exchange which can't come before its intrinsic value according to the Austrian theory above.

We see that price appreciation is radically outpacing growth of transactions that are orthogonal to the speculation and SatoshiDice dust. Thus we know the future intrinsic value is orders-of-magnitude lower than than the future market cap. The current market cap is not so huge and the current ecosystem has much potential, so we can't say much about the current intrinsic value which hasn't yet reached the potential valuation of what is already in place. It is just that the price is moving (nominally in dollars) much faster than the currency ecosystem.

Lets look at it psychologically. When the BTC price stops rising because the capital that can and will be moved into Bitcoin has slowed (or peaked), then those who own $100,000 to $millions (which probably includes all those who now own $10,000+ of BTC) are going to want to deploy their capital productively. Unless Bitcoin is as widely accepted as the dollar, then they will find their opportunities to invest BTC in businesses without it being converted to dollars will be limited and it will prevent them from optimizing their investments.

So capital will leave BTC to the point that each person holds in BTC what is reasonable for the opportunities of medium-of-exchange that are available. Since BTC price is rising so fast, we are looking at market cap saturation no latter than 2016 ($1m per BTC x 15m coins = $15 trillion) unless the general public is selling assets to buy Bitcoin, but more likely 2014 or 2015. That is not enough time to develop a wide enough medium-of-exchange ecosystem.

My expectation is the market cap will fall back to less than $1 trillion, probably in the 10 to 100 $billion range, i.e. the level when it reached maturity stage and before the mass mania enveloped and factoring in some growth in use as currency in the interim. Thus I am expecting a post-crash price for BTC of roughly $500 to $5000. The higher guesstimate assumes the bubble runs another 3 years to $1 million per BTC. I don't know how widely this bubble is going to spread in the general population. If the majority avoid it, then we might top out at $1 trillion market cap which would be $50,000 per BTC which would be early 2015ish, and thus I would expect the $500 range for the intrinsic currency value.

You see I entirely believe in the concept of how we take over the fiat system, it is just that Bitcoin's price is moving up too fast. (this is orthogonal to my view that Bitcoin is also technically flawed and would succumb to the government any way)

Some of us will be trying to do something to fix this. My projections above do not take into account if any such altcoin could moderate Bitcoin and thus make our crypto-currency ascent more sustainable and with a higher floor for the more developed intrinsic value given more time to develop with a moderation of price appreciation due to competition and dilution of the coin money supply.

Note that hitech markets can develop much faster than physical markets. I have a specific idea of how to make crypto-currency widely used as a currency, i.e. that the merchant is also the customer and going after facebook with this. As some of you may know, I created the world's first social network with 1 million users when the internet population was 100 million.

If I have time, I will take a look at the curve fitting to BTC price and comment later.

Good luck to all.


Okay let's consider the following possibility. It appears to me to be an initial mania among the tech early adopters, then a maturity phase, and now entering the blow up mass mania phase. This pace of price appreciation to $10,000 by June 2014, will pull in the masses. It will be all over the news in 2014.

Bear in mind the psychology of the following chart. Movements from $10 to $100 are not as worrisome (envious) to the general population as movements from $100 to $1000 and then from $1000 to $10,000. And that is even not factoring in potential synergistic acceleration I am positing below. It is not that someone couldn't have invested the same amount and made the same 10x gain, rather it is that the market cap relative to the world's net worth is becoming more significant. And people sense this intuitively in the level of nominal price rises and the fact that more noise is made (in the news, word-of-mouth, investment newsletters, etc) with larger market cap invested.

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[molecular]

OP updated to the best chart (by tonico).

I did some very interesting analysis re:the similarities of relative overvaluation in April and now. In April we were "only" about 3.2x the then current trendline when the bubble popped.

Now the high value has been similarly 3.3x (at ATH).

If the bubbles compare, expect $400s to be visited not only briefly but repeatedly.

Call me naive, but maybe bubbles don't pop as hard any more these days and it's already over.

Yes, there may be wishful thinking behind this. But think about it: each "bubble" has "popped" less hard and quicker than the one before. So maybe we're already on the way to break the ATH (Risto, you can then buy again at the ATH, which is best point to buy).

Just a thought.

[AnonyMint]

look where the linked chart goes. Risto please delete this post, as my personal business is irrelevant to the thread topic. The level of jealousy among some people is unfathomable.

Jealousy??

WTF are you talking about?

Ease up on the paranoia. Just curiosity.

You mentioned something.

Why disclose something you don't really want to disclose?

I think your post & delete technique would be better served in chat rooms, this is a forum after all. Constant deletion degrades the overall quality of the content, as proven by old posts with missing pieces. If you don't want to say something, simply don't say it.

Relax I edited and added that to my post after I read arklan's commendable comment which immediately followed mine.

Why did I bother to mention (a few off words in a very long comment) that maybe I know something about how to increase the currency usage of Bitcoin and other crypto-currencies? Does that mean I need to justify it as if reputation is really means anything any way. Everything is conjecture until it is reality.

I would be grateful if Risto decides to delete all the posts on this tangent.

[FiatKiller]

Appreciate your post, Anony. It was very interesting.  :-D

[AnonyMint]

Since BTC price is rising so fast, we are looking at market cap saturation no latter than 2016 ($1m per BTC x 15m coins = $15 trillion) unless the general public is selling assets to buy Bitcoin, but more likely 2014 or 2015. That is not enough time to develop a wide enough medium-of-exchange ecosystem.

Let's try to quantify. Global wealth is $241 trillion. Global GDP is roughly $50 trillion for 2013. Global debt is roughly 3x GDP (and that doesn't even include the $quadrillion in derivatives), thus global debt is roughly $150 trillion.

So in theory that nets out $91 trillion in net worth. However, not all of that is liquid. Probably much of it is tied up in real estate. And it is not equally distributed, and most of that positive net worth is owned by the top 3%. Credit Suisse says the richest 1% own 46% of the wealth, so at $120 trillion that must mean the rest of society is net negative net worth once the global debt is written down. Do you think they want to let us "little guys" compete with them?

So I stick by the $15 trillion maximum market cap as being a reasonable rough guesstimate. Much depends on if debt is still readily available. I happened to think 2016 is the year the debt crisis blows up worse than 2008 (but who knows for sure).

May be interesting to compare to smartphone adoption s-curve and the total population.   Slope is likely to be similar from a technology adoption perspective.   If you assume all fiat replaced then not sure 1M is enough.  

In my application of the model, the population consists of all speculators who will ever buy bitcoins.

Problem is that speculators sell, and adopters of washing machines didn't (c.f. the linked chart of technology adoptions over the past 100 years).

Wrong model.

[rpietila]

I constructed a trendline based on daily prices, and calculated through the last and current bubbles.

It is helpful to know what a logarithmic scale means. Basically it means that every 0.1 difference equals to 26% (compounding). Ten times 0.1 compounds to 1.26^10 = 10.

We express the relative undervaluation/overvaluation in logscale, where 1.0 means that the actual value is 10.0x trend and -1.0 means that it is at 0.1x the trend. That extreme valuations we did not see, though.

Spring

At the low point in 14.1., we started the rise from -0.46.
The trendline was crossed in 21.3., at 0.00 (66 days later)
The peak was reached in 9.4., at 0.45 (19 days later)
The low was reached in 7.7., at -0.30 (89 days later)

Autumn

At the low point in 3.10., we started the rise from -0.34.
The trendline was crossed in 9.11., at 0.00 (37 days later)
The peak was reached in 30.11., at 0.46 (21 days later)
The low was reached in TBD

After spending the whole week so far pretty much with these calculations, I can say that I mostly subscribe to the scenario where bitcoin's exchange rate is currently overvalued by more than 100% (0.32 in log scale). Because the overvaluation is so gross and the delusion of fair value so pervasive (I even personally "turned bull" at the ATH after making my initial bearish call in 20.11. at a lower price), it will take 1-3 months to reach the healthy low in relative valuation. It is not guaranteed that the relative low coincides with the absolute low (the cheapest intraday opportunity to buy in April was only 2 days after the bubble pop, whereas the final capitulation happened at a little bit higher level).

Because I am now so sure of this, I will seek the opportunities to trade the downtrend, sell up to 50% of my bitcoins with the intention to buy them back at the trendline, and to instruct the ones in their bitcoin accumulation phase to buy only very limited amounts when there is still air in the price.

Bitcoin is going to the moon, but it is not going to the moon overnight. I watched it go as close as possible to the moon from 0.25 to 32 and then to 2, which was my entry point. Realistically the following 6 months will not see similar development (going from 1000 to 128,000 per bitcoin, without stopping). If they do, then the other half of my bitcoins is worth so much that it gives me enough to think about.

The trendline (which I constructed anew from daily data) is now at 420, indicating that there is not much point to buy anything over 500 from the flashcrashes that will certainly continue during the following days and weeks.

If we allow 60 days of downtrend from the bubblepop (30.11.) to the final capitulation (est. 29.1.), the trendline is approximately at 590. The characteristic of a low is about -0.20...-0.30 relative valuation. To be on the safe side, we take -0.20, which corresponds to the target price of 372. To add some safety margin, the highest bids should be at 450 or so.

So now it's the time to be right and sit tight (this time with the fiat of your choice). Objectively bitcoin is now expensive, and speculative selling at prices above 800 is a very good proposition. If you have been thinking where I've been the last few days, the answer is: selling. And running excel calculations. and selling some more.

[stripykitteh]

After spending the whole week so far pretty much with these calculations, I can say that I mostly subscribe to the scenario where bitcoin's exchange rate is currently overvalued by more than 100% (0.32 in log scale). Because the overvaluation is so gross and the delusion of fair value so pervasive (I even personally "turned bull" at the ATH after making my initial bearish call in 20.11. at a lower price), it will take 1-3 months to reach the healthy low in relative valuation. It is not guaranteed that the relative low coincides with the absolute low (the cheapest intraday opportunity to buy in April was only 2 days after the bubble pop, whereas the final capitulation happened at a little bit higher level).

Thank you for sharing your analysis. I came to much the same conclusion over the weekend as you did and have hedged 20% of my holding with March '14 sell contracts. I may hedge a little more, though I suspect the best prices to do so are already behind us. If I think the bear has bottomed out before March I might close out my position then to take profits. The thought occurs to me that if a relative neophyte like me is doing this, if I'm right then there are bigger fish who have already done the same. There will be some whales who will be quite happy to see the price fall in the short term.

Bulls make money.
Bears make money.
Pigs...etc.

[AnonyMint]

Imagine how many are taking profits now at the $1000 psychological level after a quick 10 bagger in a few months this year, and what is their action when the price starts to run away from them? That is how we can see ask liquidity dry up and the price rocket. Because surely they are not taking profits to remain out of Bitcoin because they all expect 10 - 1000X higher prices.

Is the new demand coming in going to offset those taking profits? Bitcoin is suddenly new in China and there is a lot of money there trapped that can't find juicy ROI because the government is cracking down on the stock and real estate market bubbles and there are capital control making it more difficult to move money out of the country, especially for the household sector (the non-professional investors).

Referring to my prior post with the chart history we see two different rates of appreciation. We see the initial mania as the tech savvy rushed in as it started to have some real value around $1. Then we see a log10 linearity fit since that initial bubble was burst. This appears to be a basing activity while Bitcoin's ecosystem has matured enough to be ready for the masses to come in. It appears both of those phases lasted about 12 - 14 months. So if that is true, we should be entering a new phase now.

We are looking at a global investment here. This is the only stock that can be bought from every nation on earth right now.

I am not comfortable with assuming the log10 trendline is the norm. It appears to me it could possibly be a basing pause between the initial mania for the techies and the mass market mania to come. The assumption that the blowoff mania comes at the beginning doesn't normally make sense in markets. They usually come at the end. I am thinking the desire to view Bitcoin as log10 is the desire to assume Bitcoin is a S-curve logistic technology adoption, which I already tried to refute in my prior post.

If you compare the fractional gains that could be made by moving back to trendline (e.g. perhaps at most a double) with the losses to be sustained if the mass mania overpowers (e.g. it could quickly be up another 10X in a few more months), then I think one needs to have stop-losses on their short positions.

For the person who doesn't have time to manage those stop-losses and who is not fully invested, perhaps the wisest strategy is dollar cost averaging, i.e. as it drops buy more.

The chart pattern could be a quick flash crash with a dead-cat bounce and a renewed decline to find a low. This is what normally happens in a market where the new capital rushing in is not the major factor and instead it is the psychology of existing capital looking at that market.

However, Bitcoin may have so much new capital coming in that the psychology of those who rushed to buy the dead-cat bounce may not have enough significance.

Compare the chart of the tulip mania:

[rpietila]

I am not comfortable with assuming the log10 trendline is the norm. It appears to me to be a basing pause between the initial mania for the techies and the mass market mania to come.

I tried to fit in many kinds of trendlines but all ended up surprisingly close to the one whose growth coefficient k ~ 23%/month.

The original mania phase in 2010-2011 if we measure from start to the bottom of the crash, has the same slope. If we only pick the upward going part, then we have a nice model whose prediction is todamoon, but those who followed it, lost money

I believe you are intelligent enough to actually understand this matter. Even the big bitcoin bubble which will commence in 12-24 months perhaps, will nicely obey the model.

If you compare the fractional gains that could be made by moving back to trendline (e.g. perhaps at most a double) with the losses to be sustained if the mass mania overpowers (e.g. it could quickly be up another 10X in a few more months), then I think one needs to have stop-losses on their short positions.

I think this is not necessary. Let's see the gamble that I am doing now (selling half and waiting for buyback). It consists of 2 scenarios one of which will happen:

- I will get to buy back double the sold amount, which will increase my stash by 50%, and then bitcoin likely goes to the moon

- I will never get to buy back, so I have the millions, the trendline buyback price rises, and my stash is permanently 50% smaller BUT this can only happen in connection with the event that Bitcoin goes to the moon.


The first scenario is obviously the optimal. Very good increase in bitcoin holdings after only 1-3 months waiting, and meanwhile some shielding against the total failure of Bitcoin.

The second one is also not a loss. I have a lot of money, and the only thing that causes me not to reinvest the money eventually, is the relentless rise in BTC price. The trendline hits $1 million per BTC in 2016, so either I win or I win.

(I actually did suggest using stop-loss in my diary thread, where I also copied this to.)

[AnonyMint]

If we blast off from here, we would be looking at the peak of the bubble for Bitcoin at $10,000 - $50,000 in 2014. However, I can't know when the masses move into Bitcoin. Nor can I know if we return to the former slope. Intuitively it feels a bit early, and I think Bitcoin might exceed $1 trillion global market cap before it is all done. However, I also can't know if the final phase runs longer than the first two phases (assumes the concept of phases with different slopes is even valid at all).



Price = Slope x (10 ^ Time) = 10 ^ (Slope ^ -10) x (10 ^ Time) = 10 ^ ((Slope ^ -10) x Time)

So if we plot Price(log10) = log10(Slope x (10 ^ Time)) = Slope x Time

In other words, the scaling of time by Slope is a constant factor. Meaning roughly capital coming in (and shrinkage of ask liquidity) was increasing at 10 times per constant period.

Thus the initial 12 - 18 month phase was linear in log10 yet with a greater constant slope, thus the capital was still coming in was increasing at 10 times per constant period, yet the rate of capital ingress per unit time was faster.

The second 12 - 18 month phase was also linear in log10 yet with a lower constant slope, thus the capital was still coming in was increasing at 10 times per constant period, yet the rate of capital ingress per unit time was slower.

I am not comfortable with assuming the log10 trendline is the norm. It appears to me to be a basing pause between the initial mania for the techies and the mass market mania to come.

I tried to fit in many kinds of trendlines but all ended up surprisingly close to the one whose growth coefficient k ~ 23%/month.

I don't know what will happen.

But why do you assume the entire life of Bitcoin has to follow one slope?

The original mania phase in 2010-2011 if we measure from start to the bottom of the crash, has the same slope. If we only pick the upward going part, then we have a nice model whose prediction is todamoon, but those who followed it, lost money

Everyone loses money in a bubble (if they sell below the price they purchased). What prevents a second bubble?

The reason for the first bubble is easy to understand. These were tech savvy non-professional traders. Since then the institutional money and professional traders have been moving in. After that comes the second group of non-professional traders-- masses.

I think one could make the argument that Bitcoin is not quite ready for the masses to come in and we are still basing with institutional money coming in. In that case, return to trendline or below is even more likely. The institutional money would try to push it down to get in at a lower price, as I argue that Baidu did recently. If a sufficiently powerful entity decides they want to buy at a lower price, then they can possibly arrange some misinterpreted regulatory news to push the price (as we saw with the recent China news which was actually legalizing Bitcoin yet was misunderstood). I can't know this, but I do see the large China pump & dump & repurchase is probably done.

This is textbook bubble.

I believe you are intelligent enough to actually understand this matter. Even the big bitcoin bubble which will commence in 12-24 months perhaps, will nicely obey the model.

Which model?

Do you have evidence that the slope of the curve doesn't vary during a mania? I am searching for this data now, but the problem is this price data on the tulip mania is insufficient and the south seas mania was a step function because price was driven by 4 non-continuous financings.

So Bitcoin will be the first global mania that we have really good price data.

If you compare the fractional gains that could be made by moving back to trendline (e.g. perhaps at most a double) with the losses to be sustained if the mass mania overpowers (e.g. it could quickly be up another 10X in a few more months), then I think one needs to have stop-losses on their short positions.

I think this is not necessary. Let's see the gamble that I am doing now (selling half and waiting for buyback). It consists of 2 scenarios one of which will happen:

- I will get to buy back double the sold amount, which will increase my stash by 50%, and then bitcoin likely goes to the moon

- I will never get to buy back, so I have the millions, the trendline buyback price rises, and my stash is permanently 50% smaller BUT this can only happen in connection with the event that Bitcoin goes to the moon.

Then it goes to < 1% of the moon peak price, but I assume you don't agree that Bitcoin is a bubble. Thus you would discount entirely this possibility. So the danger of hanging on for the moon price is that you likely lose everything, since the waterfall crash side of the peak is very difficult to get out of both psychologically and also dearth of liquidity.

Thus the way to make money on Bitcoin is to sell well before the moon price. Thus maximizing the number of coins invested is the way to maximize gains.

The first scenario is obviously the optimal. Very good increase in bitcoin holdings after only 1-3 months waiting, and meanwhile some shielding against the total failure of Bitcoin.

The chance of Bitcoin failing right now is basically 0. Even if there was a technical problem (well there are actually), they will be hidden under the rug at this point. There is too much professional money at stake, any and everything will be done to keep this bubble alive at this nascent stage.

Besides one shouldn't have even half of their networth in Bitcoin.

The trendline hits $1 million per BTC in 2016, so either I win or I win.

Or you lose nearly all.

[AnonyMint]

If you look at the chart I annotated with lime green lines, you see the just as the price moved back above the $30 peak of that prior bubble that is when the slope of the ascent was the same higher rate as before in the runup to $30. Then it hit trendline and corrected. That could possibly be interpreted to mean that was a breakout and retest. Thus it looks like since June 2013 we are back to the higher slope rate. Thus the entire part hugging the red trendline appears to be the consolidation dip. Of course it might not be. I said consider a possibility. I don't know how likely.

[FiatKiller]

Another factor is that LTC ASICs are likely to hit next year. LTC skyrocketing will probably boost BTC instead of the usual relationship. Because good press for any crypto helps all cryptos.

[mccoyspace]

Of course every day that we trade sideways is another day for the slope to come back up and meet us.
Muddling through for a few weeks would be a very good thing.

[AnonyMint]

[mu]

Another factor is that LTC ASICs are likely to hit next year. LTC skyrocketing will probably boost BTC instead of the usual relationship. Because good press for any crypto helps all cryptos.

As far as I know LTC uses Scrypt, which prevents ASICs from working. Is there something I'm missing?

[AnonyMint]

Another factor is that LTC ASICs are likely to hit next year. LTC skyrocketing will probably boost BTC instead of the usual relationship. Because good press for any crypto helps all cryptos.

As far as I know LTC uses Scrypt, which prevents ASICs from working. Is there something I'm missing?

Colin Percival, the author of Scrypt says:

14:36 < cperciva> If your goal is to have something which works well on GPUs but is hard to put
14:36 < cperciva> onto an ASIC, your current "small scrypt" approach is probably about right.
14:36 < cperciva> You won't block ASICs completely of course, but you've reduced their advantage
14:36 < cperciva> by ~ a factor of 10, which may be enough to keep them away for now at least.

Given the 1000+ advantage that ASICs have over CPUs on Bitcoin, 10x is not enough to stop them. Since the market cap of Litecoin has increased significantly on this latest price rise, there might be enough incentive now.

[diedicar]

I do appreciate the excellent rpitelia's work and his insightful take on risk management of his position.
But as AnthonyMint points a constant slope is very unlikely.

There are different phases that have to depend on media coverage. We just got a major rally in prices which is attracting a whole new target of speculators, including myself.

So, considering that, the optimal smart's money scenario is a strong pump and dump that inflates a bubble from these levels (from 800 to 1800) and a symmetric crash after. Than we can reenter the old trendline after neutralizing this new dumb money possible play.

[zimmah]

I do appreciate the excellent rpitelia's work and his insightful take on risk management of his position.
But as AnthonyMint points a constant slope is very unlikely.

There are different phases that have to depend on media coverage. We just got a major rally in prices which is attracting a whole new target of speculators, including myself.

So, considering that, the optimal smart's money scenario is a strong pump and dump that inflates a bubble from these levels (from 800 to 1800) and a symmetric crash after. Than we can reenter the old trendline after neutralizing this new dumb money possible play.

the slope is not constant, but the AVERAGE is.

or at least it has been since the last 4 years, and it's likely to continue so for the next couple of months/years.

[diedicar]

I do appreciate the excellent rpitelia's work and his insightful take on risk management of his position.
But as AnthonyMint points a constant slope is very unlikely.

There are different phases that have to depend on media coverage. We just got a major rally in prices which is attracting a whole new target of speculators, including myself.

So, considering that, the optimal smart's money scenario is a strong pump and dump that inflates a bubble from these levels (from 800 to 1800) and a symmetric crash after. Than we can reenter the old trendline after neutralizing this new dumb money possible play.

the slope is not constant, but the AVERAGE is.

or at least it has been since the last 4 years, and it's likely to continue so for the next couple of months/years.

how can it be the same average slope given:
1 much more media coverage?
2 different scale of possible speculators coming in?
if, in a logistic framework, we assume that average slope is given by the doubling of market participants every 3 months or so. How can they not TRIPLE given this different environment?
we just experienced a sudden, enormous, enlargement of the participants base.  We'd better check the media coverage on a logaritmic scale to understand if the environment really changed.

[diedicar]

http://www.google.it/trends/explore#q=bitcoin
food for thought.