rpietila Wall Observer - the Quality TA Thread ;)

[Peter R]

Awesome chart that well illustrates your discovery. May I refer to it in my logistics model thread?

Thanks for the compliment!  I've been meaning to check this relationship out for months.  Only took me 15 min lol.  Yes, please feel free to use it however you like.  

Very nice charts, indeed, but they suggest current fair value of $70-300  

The N log N chart suggests a low value, but the Metcalfe Value chart (N^2) would be near $500 now.  Also note this is MtGox price data and only includes data to February 5, 2014.  The Metcalfe value has been growing for another month and a half. 

I should do some nicer plots where I merge the MtGox (past) price with the BitStamp (current) price so that we can track the Metcalfe Value in real time.  I should also include the calendar date so that it is less confusing! 

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[windjc]

Right, TA is better than FA because bitcoin is a stock. Or a commodity. Or a stock. Or a commodity. Not a technology. Got it.

BTC is a currency. Bitcoin is a technology.

Charts show you what is going on regardless of what you trade, currency/commodity/stock/etc makes no difference.

What was your point again (if you have one)?

My point is obvious. Stocks and commodities do not grow exponentially.

[N12]

Right, TA is better than FA because bitcoin is a stock. Or a commodity. Or a stock. Or a commodity. Not a technology. Got it.

BTC is a currency. Bitcoin is a technology.

Charts show you what is going on regardless of what you trade, currency/commodity/stock/etc makes no difference.

What was your point again (if you have one)?

My point is obvious. Stocks and commodities do not grow exponentially.

So you think Bitcoin is the only thing in the world where you can draw straight lines on a log chart?

[windjc]

Right, TA is better than FA because bitcoin is a stock. Or a commodity. Or a stock. Or a commodity. Not a technology. Got it.

BTC is a currency. Bitcoin is a technology.

Charts show you what is going on regardless of what you trade, currency/commodity/stock/etc makes no difference.

What was your point again (if you have one)?

My point is obvious. Stocks and commodities do not grow exponentially.

So you think Bitcoin is the only thing in the world where you can draw straight lines on a log chart?

Nope. Not at all. But I do think that Bitcoin continues to surprise typical traders with its violent upswings.  Going down, it all seems to make sense to them. Bottoms and tops, not so much.

[chessnut]

Why is it so hard to understand that fundamentals and TA are both significant?

so we know Bitcoin is fantatic, love it, great fundamentals. but have we been beaten to the scene? is it in a bubble? is there a large unknown seller in the market? what is the subjective value of a bitcoin? what is the rate of growth? those are questions that Fundamental analysis cannot answer easily on its own.

[Peter R]

Here is an improved graph of the bitcoin price history versus the Metcalfe value.  I am now using the price history from bitcoinaverage.com (giving me post-Gox prices as well), and I am using both the number of transactions per day (excluding popular addresses) and the number of unique bitcoin addresses used per day as the N in Metcalfe's Law : V ~ N^{2 .}

I would like to do a proper regression to get a numerical model, but the blockchain.info charts currently have holes in the data (the large spikes visible on the curves) that render such a processes useless.  For the time being then, I've just eyeballed the fits as you see below.  

The current price of bitcoin is slightly higher than its Metcalfe value.  However, should the network continue to grow at its historical rate of 3.2X per year, the Metcalfe value should exceed the current bitcoin price later this spring.  

[dnaleor]

Here is an improved graph of the bitcoin price history versus the Metcalfe value.  I am now using the price history from bitcoinaverage.com (giving me post-Gox prices as well), and I am using both the number of transactions per day (excluding popular addresses) and the number of unique bitcoin addresses used per day as the N in Metcalfe's Law : V ~ N^{2 .}

I would like to do a proper regression to get a numerical model, but the blockchain.info charts currently have holes in the data (the large spikes visible on the curves) that render such a processes useless.  For the time being then, I've just eyeballed the fits as you see below.  

The current price of bitcoin is slightly higher than its Metcalfe value.  However, should the network continue to grow at its historical rate of 3.2X per year, the Metcalfe value should exceed the current bitcoin price later this spring.  

just a small thing: I guess you need to multiply the price of a bitcoin with the number of coins.
The value of a network is the market cap, I suppose...

If you do that, I guess the large "spread" at the left side in the chart will become smaller.

[Peter R]

just a small thing: I guess you need to multiply the price of a bitcoin with the number of coins.
The value of a network is the market cap, I suppose...

If you do that, I guess the large "spread" at the left side in the chart will become smaller.

Good idea dnaleor.  The fit between Metcalfe Value and market cap is better than the fit to bitcoin price for the early days.  It also seems like number of transactions per day (excluding popular addresses) fits the left side better than unique addresses used per day:

[chriswilmer]

I think it's relatively easy to find these seemingly insightful correlations among Bitcoin metrics... since the userbase is growing exponentially, pretty much everything about Bitcoin is increasing exponentially as well. Not saying this use of Metcalfe's law is a waste of time, just that it shouldn't be so surprising that it works so well.

[Peter R]

I think it's relatively easy to find these seemingly insightful correlations among Bitcoin metrics... since the userbase is growing exponentially, pretty much everything about Bitcoin is increasing exponentially as well. Not saying this use of Metcalfe's law is a waste of time, just that it shouldn't be so surprising that it works so well.

This is showing more than exponential growth. It is showing that a 10X increase in market cap is correlated with a Sqrt(10)X increase in N, i.e., we are witnessing the economic realization of Metcalfe's Law.  For the last four years, a 316% increase in N has corresponded with a 1,000% increase in market cap.  

If you plot market cap vs N the fit is not nearly as good (see below).  The price diverges by an order of magnitude at both sides, where the Metcalfe model is fairly accurate over more than 4 decades of market cap growth!


  

[chriswilmer]

OK, I'm convinced!!!

Thanks for making the plot Peter!

[chriswilmer]

This would make for a great academic paper!

[Peter R]

This would make for a great academic paper!

I'm starting to think there is a lot of low-hanging fruit that would make interesting research papers.  We need to found J Bitcoin.  This forum is useful for brainstorming and vetting ideas, but I think a lot of good work gets lost and forgotten in the noise.  It would be useful to publish highly-polished peer-reviewed manuscripts in an archival format accessible to everyone.

[SlipperySlope]

This is showing more than exponential growth. It is showing that a 10X increase in market cap is correlated with a Sqrt(10)X increase in N, i.e., we are witnessing the economic realization of Metcalfe's Law.  For the last four years, a 316% increase in N has corresponded with a 1,000% increase in market cap.  

A simply stunning discovery and insight.

It seems quite plausible that bitcoin transaction growth will continue at this rate for at least a few more years as current payment transaction infrastructure is disrupted. For example, in three years time 3.2x annual transaction growth would be only 2 million Bitcoin transactions per day correlating to a bitcoin price 1000x higher than today. Two million daily bitcoin transactions is not much compared to the current 212 million daily Visa transactions.

There could well be a disconnect from Metcalfe's Law beyond four more years. In say 8 more years, when the quantity of Bitcoin transactions exceed the current quantity of bank card transactions, I find the predicted bitcoin price value of 57 billion USD per bitcoin implausible.

[chriswilmer]

This would make for a great academic paper!

I'm starting to think there is a lot of low-hanging fruit that would make interesting research papers.  We need to found J Bitcoin.  This forum is useful for brainstorming and vetting ideas, but I think a lot of good work gets lost and forgotten in the noise.  It would be useful to publish highly-polished peer-reviewed manuscripts in an archival format accessible to everyone.

Yeah, I've been pestering my academic colleagues in economics (I am myself a prof. of chemical engineering) to publish a paper that addresses something to do with Bitcoin... but they either laugh or take the idea seriously, but the serious ideas they will consider is how to prove that Bitcoin is a bubble

*sigh*

As a chemical engineer, I am interested in potentially applying some of the rigorous powerplant optimization methodology to a large-scale Bitcoin mining operation and publish a paper on that.

[Peter R]

There could well be a disconnect from Metcalfe's Law beyond four more years. In say 8 more years, when the quantity of Bitcoin transactions exceed the current quantity of bank card transactions, I find the predicted bitcoin price value of 57 billion USD per bitcoin implausible.

Lol, I was doing the same math earlier today while jogging.  

I came to a similar conclusion: we may see up to ~4 more years of growth following Metcalfe's law, putting us at a Metcalfe Value near $50,000 / coin and near 1% market saturation.  At some point we must diverge from V~N² growth, otherwise the price projections get ridiculous like you just pointed out.      

[chriswilmer]

Either way... kind of makes you want to HODL doesn't it?

[SlipperySlope]

This would make for a great academic paper!

I'm starting to think there is a lot of low-hanging fruit that would make interesting research papers.  We need to found J Bitcoin.  This forum is useful for brainstorming and vetting ideas, but I think a lot of good work gets lost and forgotten in the noise.  It would be useful to publish highly-polished peer-reviewed manuscripts in an archival format accessible to everyone.

See this thread from 2012 ...

https://bitcointalk.org/index.php?topic=115048.0

Looks like the correct search term is "Financial Cryptography".
Also the spring link (http://www.springer.com/generic/search/results?SGWID=0-40109-23-0-0&searchType=EASY_CDA&queryText=Financial+Cryptography+and+Data+Security&sortOrder=relevance&searchScope=books) seems to be the closest thing to something peer-reviewed.

[chriswilmer]

This would make for a great academic paper!

I'm starting to think there is a lot of low-hanging fruit that would make interesting research papers.  We need to found J Bitcoin.  This forum is useful for brainstorming and vetting ideas, but I think a lot of good work gets lost and forgotten in the noise.  It would be useful to publish highly-polished peer-reviewed manuscripts in an archival format accessible to everyone.

See this thread from 2012 ...

https://bitcointalk.org/index.php?topic=115048.0

Looks like the correct search term is "Financial Cryptography".
Also the spring link (http://www.springer.com/generic/search/results?SGWID=0-40109-23-0-0&searchType=EASY_CDA&queryText=Financial+Cryptography+and+Data+Security&sortOrder=relevance&searchScope=books) seems to be the closest thing to something peer-reviewed.

Yes, but a result about Metcalfe's law doesn't need to go in a cryptography journal. It's really an economic result and should go in a journal of economics... it just seems that there is a cultural barrier to overcome at the moment.

[SlipperySlope]

There could well be a disconnect from Metcalfe's Law beyond four more years. In say 8 more years, when the quantity of Bitcoin transactions exceed the current quantity of bank card transactions, I find the predicted bitcoin price value of 57 billion USD per bitcoin implausible.

Lol, I was doing the same math earlier today while jogging.  

I came to a similar conclusion: we may see up to ~2 more years of growth following Metcalfe's law, putting us at a Metcalfe Value near $50,000 / coin and near 1% market saturation.  At some point we must diverge from V~N² growth, otherwise the price projections get ridiculous like you just pointed out.      

Metcalfe's Law is based upon the common sense notion that adding nodes to an economic network adds value in proportion to the quantity of other nodes that can be reached. So perhaps at some point the Bitcoin economy develops small world effects in which clusters of nodes are well connected, but otherwise nodes are not as well connected universally. By well connected, I mean economically visible and useful. For example, small world effects are present in the world's email network due to incompatible natural languages.