Future price of bitcoin - logarithmic chart

[oda.krell]

It's arguably the best starting assumption, though. At least a straight line that is a best fit for the data is the simplest starting assumption. Occam's razor suggests not making it more complicated without particular reason, and it seems to me there's enough shooting in the dark as is that there's a very high bar on adding more complexity to the trendline.

True. You'll note I said that I'm not rejecting linear regression at all. Just that I want everyone to be clear about the assumptions made.

For me, it is useless in this case, because a thousandfold price increase within some months is possible exclusively in the very beginning. Or does somebody really believe that this could be repeated later in the game?

Where do you see a "thousandfold price increase within some months" anywhere in the above chart? The analysis basically said: 10-fold increase each year. In reality, we're above the price predicted by that line right now.

And why shouldn't such an increase continue, for now? Sure, there will be *some point* in the future when this growth needs to slow down, but while each increase by a factor of 10 requires more capital entering the market (to go from 10 to 100 requires a higher increase of absolute market cap than an increase from 1 to 10), this could well be countered by increasing benefits from network effects, as a result of the increased popularity (and perceived security) of Bitcoin.

[Zarathustra]

It's arguably the best starting assumption, though. At least a straight line that is a best fit for the data is the simplest starting assumption. Occam's razor suggests not making it more complicated without particular reason, and it seems to me there's enough shooting in the dark as is that there's a very high bar on adding more complexity to the trendline.

True. You'll note I said that I'm not rejecting linear regression at all. Just that I want everyone to be clear about the assumptions made.

For me, it is useless in this case, because a thousandfold price increase within some months is possible exclusively in the very beginning. Or does somebody really believe that this could be repeated later in the game?

Where do you see a "thousandfold price increase within some months" anywhere in the above chart? The analysis basically said: 10-fold increase each year. In reality, we're above the price predicted by that line right now.

edited: You are right, 500-fold only, 0.06 to 32

October 10 - June 11; which is included in the linear regression, which will never happen again.

[DeathAndTaxes]

$0.10 to $32 (as an unsustainable peak which crashed back to ~$2) isn't a thousand fold increase.

[Zarathustra]

$0.10 to $32 (as an unsustainable peak which crashed back to ~$2) isn't a thousand fold increase.

Unsustainable was not only the trend line to the peak, but the trend from 0.06 to USD 2 as well:

[PrymeTyme]

It's arguably the best starting assumption, though. At least a straight line that is a best fit for the data is the simplest starting assumption. Occam's razor suggests not making it more complicated without particular reason, and it seems to me there's enough shooting in the dark as is that there's a very high bar on adding more complexity to the trendline.

True. You'll note I said that I'm not rejecting linear regression at all. Just that I want everyone to be clear about the assumptions made.

For me, it is useless in this case, because a thousandfold price increase within some months is possible exclusively in the very beginning. Or does somebody really believe that this could be repeated later in the game?

But what I know from past experience is that initial stage investments like this are always volatile. But if they take hold then they can go up further than you could ever, ever, ever, ever imagine.
Microsoft back in 1986 to 1987 rose 400% then corrected 30% – twice – before rising again. Microsoft eventually topped out after a 44,000% rally from that point. Forty-four THOUSAND.

Source http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/11/Bitcoin.pdf

The Lables in the Chart wich say "bubble" are in Hindsight
Just overbought scenario s.  Where after price just returned  to its mean
Wich is rising ...  First time a hinsight Analysis isnt total Crap

The Trend is up !

[oda.krell]

edited: You are right, 500-fold only, 0.06 to 32

October 10 - June 11; which is included in the linear regression, which will never happen again.

Nevermind. I see you still didn't educate yourself on what linear regression means.

a segment of the data can  contain such an increase but that  doesn't mean that the extrapolation of the line of best fit ever includes such a rapid growth again. In fact, the crash post 32 pulled down that line a lot by all chance.

There are good arguments to be made against simple linear regression as a predictor of future price, but yours are not among them.

[Zarathustra]

edited: You are right, 500-fold only, 0.06 to 32

October 10 - June 11; which is included in the linear regression, which will never happen again.

Nevermind. I see you still didn't educate yourself on what linear regression means.

No, I think I know what it means.

a segment of the data can  contain such an increase but that  doesn't mean that the extrapolation of the line of best fit ever includes such a rapid growth again. In fact, the crash post 32 pulled down that line a lot by all chance.

But not down enough:

https://bitcointalk.org/index.php?topic=328186.msg3561426#msg3561426

[DeathAndTaxes]

But not down enough:
https://bitcointalk.org/index.php?topic=328186.msg3561426#msg3561426

Drawing a line through $0.06 and $2 is simplistic.  It assumes that both $0.06 and $2 were properly priced.  It also fails to consider that a minuscule amount of Bitcoins traded at both of those prices and also fails to consider the effect of all the other multitude of data points between them.

What if the $0.06 tick was a single scared trader who sold off a relatively small number of coins into a thinly traded market.  Excluding this trader maybe the low of the day would have been 2x as high.
What if the $2 tick was saved from a lower tape by MtGox lag?   In a perfect market with perfect access maybe it would have traded down to a buck.

Drawing another line through $0.12 and $1 on those days may look completely different.  That is the problem with just picking a few data points (often the peaks and lows by "technical" traders).  Those points have some value but they aren't "the whole story" and a few small events on those days (now given heightened importance) can significantly change the line drawn.

Linear regression attempts to discount the effect of those extremes by:
a) considering all data points not just two humanly chosen points which satisfy a conclusion you already had before drawing the line
b) consider the relative DISTANCE of each point from the overall trend.  The ticks the furthest from their peers (outliers) have the least influence on the line.

Is linear regression perfect? No.
Does the chart in the OP predict the future? No (it simply says IF and ONLY IF Bitcoin continues the historical trend it will follow a random walk around this line).
Is it better than picking two points at random and drawing a line? Yes.

IMHO I think Bitcoin will hit a plateua at some point in the future simply because the infrastructure (hardware wallets, deterministic wallets, node efficiency, legal issues, service providers) haven't kept up with the growth.  This will create a "bottleneck" of sorts on higher adoption and price but there is money to be made solving those problems and they will be solved in time.   Obviously (if I am right) this is something that no statistical model could see or even claim to see.  Growth would follow a trend line and then break the trend (significantly) for some period of time.

Still for the sake of argument lets pretend you "randomly picked and drawn line using two data points" was a perfect predictor of price on a long term scale.  You still really haven't shown that the trend is unsustainable.  Bitcoin is risky and there have been a lot of risk "hits" in the last two year (FinCEN, MtGox getting seized, SR closed, various exchange hacks/thefts, bank freezes by various Bitcoin related companies, legal notices by the state, etc).  It is entirely possible that risk is discounting the actual price from the trend line (remember in that early trend prior to the $32 spike Bitcoin was pretty much invisible to law enforcement, governments, and traditional finance).  So it is certainly plausible in the short term the increased risk would discount Bitcoin from the trend.  You will notice that even on your "chart" the price is following the trend it is simply discounted.  As Bitcoin gets bigger much of that risk will be reduced and you could see the price rise up to meet the trend line some years in the future.  Simply put drawing a line across three years of data and saying it is broken long term is .... well silly.

[LOADING.READY.RUN]

But what I know from past experience is that initial stage investments like this are always volatile. But if they take hold then they can go up further than you could ever, ever, ever, ever imagine.
Microsoft back in 1986 to 1987 rose 400% then corrected 30% – twice – before rising again. Microsoft eventually topped out after a 44,000% rally from that point. Forty-four THOUSAND.

Source http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/11/Bitcoin.pdf

Now this is interesting. Another quote from the article: "Bitcoins being exchanged into or out of RMB now accounts for 21% of all volumes (versus 65% versus USD and 6% versus Euro)." . Bitcoin is the second-most exchanged currency in China behind the USD. Also: "I think we are in the take-off stage." And: "I bet you never thought you’d see this in a macro publication. But I’m serious. This just might work. Trade Recommendation: Buy Bitcoin"

Wow, just WOW. Mainstream media (and be it only the ones addressing traders so far) is picking up and recommending bitcoin!

[Wilhelm]

Good point DeathAndTaxes.
Just like mining real gold we have come far since the sieve and we're now using deep mining rigs costing millions.
More expensive mining rigs will bring the price of a bitcoin to new heights just like gold.
If a bar of 12,5 kg gold can be around €400000,- why can't 12,5 Bitcoin be that

The bitcoin will hopefully reflect the price of mining hardware and effort needed to mine deeper.

I can understand the plateau because the amount of miners will decline and mining companies will come into existence to find bitcoins.
This will probably make the trend more based on the technology and less volatile between technology shifts. Mining will slow down considerably.

Dedicated mining companies / mining clouds are popping up so we are at the beginning of the "third phase" in my view on bitcoin mining.
We still have a few years of ASIC development ahead so the price will probably keep increasing for now.

My view on phases:
First is solo miners - no adoption by anybody, no real value
Second is mining pools - adoption limited to a few companies, exchanges pop up for trading, value picking up rapidly
Third is mining corporations / mining clouds - adoption starting to pick up by quite a few companies, value picking up even more
But then???
Forth could be
 - the death of bitcoin by quantum computers
 - worldwide adoption
 - replacement of bitcoin by bitcoin_v2 to solve some oncomming problems.


That said... If I can still get 10x to 100x my money it will be a good profit

[Zarathustra]

But not down enough:
https://bitcointalk.org/index.php?topic=328186.msg3561426#msg3561426

Drawing a line through $0.06 and $2 is simplistic.  

Yes, but I guess, that a linear regression, which includes the very first period of trading is not only simplistic, but stupid as well.

Is linear regression perfect? No.

I think, it can be an accurate method, but not if you include periods which can't be relevant for the future, and such a period is the very beginning of the game, say the first 1-2 years of trading.
Many other indicators support the view, that the increase is flattening out with time passing:

http://blockchain.info/charts/blocks-size?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=1&address=

Still for the sake of argument lets pretend you "randomly picked and drawn line" was a perfect predictor of price on a long term scale.  You still really haven't shown that the trend is unsustainable.  

I have shown that the trend is flattening out within the shown period.

Bitcoin is risky and there have been a lot of risk "hits" in the last year (FinCEN, MtGox getting seized, SR closed, various exchange hacks/thefts, etc).  It is entirely possible that risk is discounting the actual price from the trend line and as Bitcoin gets bigger (possibly growing below the trend line but still growing.  As Bitcoin gets bigger much of that risk will be reduced and you could see the price rise up to meet the trend line some years in the future.  Simply put drawing a line across three years of data and saying it is broken long term while the price followed the trend just discounted from is .... well silly.

Maybe, but I think it is not more silly than to include the very first periods of trading into a prediction based on linear regression.

Thank you for hearing me ..
http://www.youtube.com/watch?v=mj_xKA5C2vU

[DeathAndTaxes]

I can understand the plateau because the amount of miners will decline and mining companies will come into existence to find bitcoins.
This will probably make the trend more based on the technology and less volatile between technology shifts. Mining will slow down considerably.

I wasn't really talking about mining.  Mining secures the network (and introduces new coins into the network) the value of Bitcoin is based on what Bitcoin "can do".  Note "price" may vary from value or utility but only so long.  If price gets too far ahead of value/utility it will eventually crash back down.   Rising value and utility is based on increased adoption and those users doing more with Bitcoins.  If you double the number of people using Bitcoin and double the number of non speculative transactions they each make then the value or utility of the network will go up and with it the continued climb of price against the dollar.  

However currently most Bitcoin users are relatively sophisticated when it comes to technology but as Bitcoin "taps out" that market to continue that exponential growth will require taping into markets with a lot less sophistication.

If your grandmother going to learn how to use the QT client, or deal with pywallet to manually remove tx that get stuck due to incorrect fees settings?
Is a Billionaire going to buy $1B in Bitcoins by wiring a billion dollars to companies he has never heard (MtGox) located in countries he may not be comfortable (BTC-e)?
If a a thousand "casual users" puts 1 BTC into an eWallet and the operator runs away with it  will they all continue to use Bitcoin in the future like a "diehard believer" might?
Are millions (and someday tens of millions) of users going to be able to keep Bitcoins secure form hackers despite being HORRIBLY bad at security and running a Windows OS full of malware because they disable security updates that take too long? 

I would guess the answer is no at least not today with the wallets, exchanges, and service providers that exist.  The bitcoin infrastructure is going to have to improve, it is improving but at a much slower pace than adoption and eventually that will be the bottleneck.  Growth will slow until Bitcoin can be made easy, safe, and painless for the "masses".  I don't care to speculate on where or when that will happen only that there is a good chance it will eventually happen.

[N12]

The bitcoin infrastructure is going to have to improve, it is improving but at a much slower pace than adoption and eventually that will be the bottleneck.  Growth will slow until Bitcoin can be made easy, safe, and painless for the "masses".

Precisely, and that's why "economic singularity" is complete nonsense.

[windjc]

I can understand the plateau because the amount of miners will decline and mining companies will come into existence to find bitcoins.
This will probably make the trend more based on the technology and less volatile between technology shifts. Mining will slow down considerably.

I wasn't really talking about mining.  Mining secures the network (and introduces new coins into the network) the value of Bitcoin is based on what Bitcoin "can do".  Note "price" may vary from value or utility but only so long.  If price gets too far ahead of value/utility it will eventually crash back down.   Rising value and utility is based on increased adoption and those users doing more with Bitcoins.  If you double the number of people using Bitcoin and double the number of non speculative transactions they each make then the value or utility of the network will go up and with it the continued climb of price against the dollar.  

However currently most Bitcoin users are relatively sophisticated when it comes to technology but as Bitcoin "taps out" that market to continue that exponential growth will require taping into markets with a lot less sophistication.

If your grandmother going to learn how to use the QT client, or deal with pywallet to manually remove tx that get stuck due to incorrect fees settings?
Is a Billionaire going to buy $1B in Bitcoins by wiring a billion dollars to companies he has never heard (MtGox) located in countries he may not be comfortable?
If a a thousand "casual users" puts 1 BTC into an eWallet and the operator runs away with it  will they all continue to use Bitcoin in the future like a "diehard believer" might?
Are millions (and someday tens of millions) of users going to be able to keep Bitcoins secure form hackers despite being HORRIBLY bad at security and running a Windows OS full of malware because they disable security updates that take too long?

I would guess the answer is no at least not today with the wallets, exchanges, and service providers that exist.  The bitcoin infrastructure is going to have to improve, it is improving but at a much slower pace than adoption and eventually that will be the bottleneck.  Growth will slow until Bitcoin can be made easy, safe, and painless for the "masses".  I don't care to speculate on where or when that will happen only that there is a good chance it will eventually happen.

The most obvious best choice for this will be what innovations Circle.com releases in a few months.  They are betting 9 million that they can create some revolutionary tools for bitcoin.

I, for one, am curious.

[amencon]

The bitcoin infrastructure is going to have to improve, it is improving but at a much slower pace than adoption and eventually that will be the bottleneck.  Growth will slow until Bitcoin can be made easy, safe, and painless for the "masses".

Precisely, and that's why "economic singularity" is complete nonsense.

Agree completely.  While we may experience a rush of adoption short term, the infrastructure isn't there to support adoption up to Bitcoin's full potential by a long shot.  With the recent rise a few friends have come asking about bitcoin and I've been telling them that bitcoin could be a good investment and is doing interesting things now but that real use by the public at large won't likely come (if it does come) for at least a couple years or more.

Looking forward medium term to hardware wallets and a system that camouflages the full bitcoin key displays from it's simple uses for users.

[BitchicksHusband]

The bitcoin infrastructure is going to have to improve, it is improving but at a much slower pace than adoption and eventually that will be the bottleneck.  Growth will slow until Bitcoin can be made easy, safe, and painless for the "masses".

Precisely, and that's why "economic singularity" is complete nonsense.

Agree completely.  While we may experience a rush of adoption short term, the infrastructure isn't there to support adoption up to Bitcoin's full potential by a long shot.  With the recent rise a few friends have come asking about bitcoin and I've been telling them that bitcoin could be a good investment and is doing interesting things now but that real use by the public at large won't likely come (if it does come) for at least a couple years or more.

Looking forward medium term to hardware wallets and a system that camouflages the full bitcoin key displays from it's simple uses for users.

People are starting to ask me about investment opportunities (they have spare cash apparently) and they have actually bought bitcoins.  This has never happened before.

[amencon]

The bitcoin infrastructure is going to have to improve, it is improving but at a much slower pace than adoption and eventually that will be the bottleneck.  Growth will slow until Bitcoin can be made easy, safe, and painless for the "masses".

Precisely, and that's why "economic singularity" is complete nonsense.

Agree completely.  While we may experience a rush of adoption short term, the infrastructure isn't there to support adoption up to Bitcoin's full potential by a long shot.  With the recent rise a few friends have come asking about bitcoin and I've been telling them that bitcoin could be a good investment and is doing interesting things now but that real use by the public at large won't likely come (if it does come) for at least a couple years or more.

Looking forward medium term to hardware wallets and a system that camouflages the full bitcoin key displays from it's simple uses for users.

People are starting to ask me about investment opportunities (they have spare cash apparently) and they have actually bought bitcoins.  This has never happened before.

Hopefully this is just how it starts.  People begin to come for investment advice in bitcoin, pushing up awareness, market capitalization and VC funding.  Later more come for it's uses after sufficient infrastructure is built and appropriate layered services are created.

[BitchicksHusband]

The bitcoin infrastructure is going to have to improve, it is improving but at a much slower pace than adoption and eventually that will be the bottleneck.  Growth will slow until Bitcoin can be made easy, safe, and painless for the "masses".

Precisely, and that's why "economic singularity" is complete nonsense.

Agree completely.  While we may experience a rush of adoption short term, the infrastructure isn't there to support adoption up to Bitcoin's full potential by a long shot.  With the recent rise a few friends have come asking about bitcoin and I've been telling them that bitcoin could be a good investment and is doing interesting things now but that real use by the public at large won't likely come (if it does come) for at least a couple years or more.

Looking forward medium term to hardware wallets and a system that camouflages the full bitcoin key displays from it's simple uses for users.

People are starting to ask me about investment opportunities (they have spare cash apparently) and they have actually bought bitcoins.  This has never happened before.

Hopefully this is just how it starts.  People begin to come for investment advice in bitcoin, pushing up awareness, market capitalization and VC funding.  Later more come for it's uses after sufficient infrastructure is built and appropriate layered services are created.

And I have told people before (around April run-up), but only 1 guy (out of about 10) actually invested.  Now it is closer to 50%.

[PrymeTyme]

Acctually the chart + drawings / channel  , should look more like this ..

[CMMPro]

Actually if you want to get technical about it the upper and lower limits should flare out as they extend in order to show uncertainty.
We call this a "trumpet chart" because they flare out like a trumpet.

Basically as we get further into the future the uncertainty increases....the trend line stays straight but the upper and lower predictions open up.
How much they flare out is based on the level of mathematical uncertainty.