rpietila Wall Observer - the Quality TA Thread ;)

[AnonyMint]

Question: Will it be a U or V bottom, i.e. will the bottom be there only for a very short duration or will it slowly rise off the bottom?

What did it do last time?

One thing I've learned is don't be in a rush to buy bottoms that come after big bubbles, because there will be many bull traps.

Since no one answered, I took a moment to look at the long-term BTC chart with volume turned off:

http://bitcoincharts.com/charts/bitstampUSD

And the 2000-2014 silver chart:

http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

I see a correlation wherein the mini-bubble 2008 crash of silver V bottomed, but the much grander bubble of the 2011 made two spike bounces off of $26ish, then on the third time down it crashed through to $18 which is below the prior high of the 2008 peak at $21 (and lately it has made two V bull traps and I bet preparing to go lower than $18 because the dollar will be getting very strong as Fed tapers and capital runs from emerging markets to dollar in a virtuous, symbiotic upward spiral).

We see the same with BTC comparing the 2013 crash from $270 to $50 where it basically V bottomed up to $170, then U bottomed at $70 going into the bubble later in 2013. This second bubble has spiked twice off of $400.

So folks, my bet the bottom is going to be below $270.

The reasons I think it is valid to compare these two markets is because:

• Both tiny market caps.
• Both more or less the same white male retail investors who hate central banking.
• Similar psychology of an irrational expectation, with silver based on expectation of hyperinflation and BTC on it becoming a currency.
• Similar media amplification between crashes leading to more greater fools on the second one.
• "It is different this time, this is unique so don't apply usual market analysis".

I don't know what probability to access to my expectation. I will think about it perhaps. Certainly correlation doesn't prove anything and this is not a certain outcome. Just sharing.

[pa]

So folks, my bet the bottom is going to be below $270.

The reasons I think it is valid to compare these two markets is because:

• Both tiny market caps.
• Both more or less the same white male retail investors who hate central banking.
• Similar psychology of an irrational expectation, with silver based on expectation of hyperinflation and BTC on it becoming a currency.
• Similar media amplification between crashes leading to more greater fools on the second one.
• "It is different this time, this is unique so don't apply usual market analysis".

I don't know what probability to access to my expectation. I will think about it perhaps. Certainly correlation doesn't prove anything and this is not a certain outcome. Just sharing.

You are ignoring the evidence that bitcoin adoption is still increasing, which makes a comparison with silver invalid.

[creekbore]

You are ignoring the evidence that bitcoin adoption is still increasing, which makes a comparison with silver invalid.

Where is the evidence of this increased adoption though?

Surely the most obvious would be number of transactions?  Yet, this is roughly the same as 12 months ago
https://blockchain.info/charts/n-transactions

The number of wallets has risen
https://blockchain.info/charts/my-wallet-n-users
but that doesn't mean they have anything in them.

And the number of transactions those wallets make has only recently started being measured but is going down since then
https://blockchain.info/charts/my-wallet-n-tx

[AnonyMint]

So folks, my bet the bottom is going to be below $270.

The reasons I think it is valid to compare these two markets is because:

• Both tiny market caps.
• Both more or less the same white male retail investors who hate central banking.
• Similar psychology of an irrational expectation, with silver based on expectation of hyperinflation and BTC on it becoming a currency.
• Similar media amplification between crashes leading to more greater fools on the second one.
• "It is different this time, this is unique so don't apply usual market analysis".

I don't know what probability to access to my expectation. I will think about it perhaps. Certainly correlation doesn't prove anything and this is not a certain outcome. Just sharing.

You are ignoring the evidence that bitcoin adoption is still increasing, which makes a comparison with silver invalid.

You just provided an example of my point about the market psychology, "It is different this time, this is unique so don't apply usual market analysis".

No offense intended, I used to be a silver tinfoil hat dude too.

For silver when the Fed started the massive QE in 2009, that was the Koolaid the silver bugs needed to run the price from $9 up to $49 (and run the silver to gold ratio down to low 30s). Now the reality has hit that hyperinflation has never and will will never occur in a reserve currency.

For Bitcoin when the press pumped out the news of the USA Congressional hearings lovefest and China's growing interest past Fall, then the Bitcoin bugs took that to mean it was going to the moon. Now the reality has hit that China Inc. is trying to suppress Bitcoin and Bitcoin can't become a currency without governments agreeing not to tax it with capital gains (as if we didn't know that before, but if I tried to tell people they told me to shut up and got nasty with me).

I suggest to Risto that he run his trendline fit on silver and see if the trendline was predicting silver would be several $100s by now? Trendline fitting is like any TA, it is correct about 50% of the time.  

I expect a U bottom on Bitcoin, not a V. So every time we see a V, I will expect it is another bull trap. Perhaps the V traps are because everyone is thinking along the line-of-thought as if Risto's trendline is gospel and we are already behind where the price "should be".

First rule of speculation, never ever tell yourself something is impossible. That is when it will bite you in the arse. We have to look at all the possibilities especially when the only evidence we have is some arbitrary trendline fit.

Again I could be wrong about all of this. Just sharing. Don't sell based on what I wrote then get angry at me if I am wrong.

I should take a look at the shape of the chart for the crash in 2011 where all the early adopters were sure Bitcoin was going to moon.

[aminorex]

You are ignoring the evidence that bitcoin adoption is still increasing, which makes a comparison with silver invalid.

Where is the evidence of this increased adoption though?

This is the chart which matters:
https://blockchain.info/charts/n-unique-addresses?showDataPoints=false&show_header=true&daysAverageString=7&timespan=2year&scale=1&address=

Exponential fundamentals remain in place.

[thefunkybits]

This is the chart which matters:
https://blockchain.info/charts/n-unique-addresses?showDataPoints=false&show_header=true&daysAverageString=7&timespan=2year&scale=1&address=

Exponential fundamentals remain in place.

agreed...this indicator is very telling (and accurate)!

[AnonyMint]

I should take a look at the shape of the chart for the crash in 2011 where all the early adopters were sure Bitcoin was going to moon.

Ah I just looked. Exactly as expected. There are the two spike bull traps, then the third crash down to below the prior bubble's peak. Same chart pattern.

[AnonyMint]

This is the chart which matters:
https://blockchain.info/charts/n-unique-addresses?showDataPoints=false&show_header=true&daysAverageString=7&timespan=2year&scale=1&address=

Exponential fundamentals remain in place.

agreed...this indicator is very telling (and accurate)!

Isn't value more important than quantity.

The longer I used Bitcoin starting in 2013, the more addresses I had. I think I may have left dormant addresses with very small BTC balances and have since forgotten about them. Possibly more and more transactions to self in different accounts, or more and more smaller accounts, e.g. remember Coinbase has a feature where someone can email someone some BTC and that person claims it by signing up with Coinbase.

Did Peter R's Metcalf law fit use value of transactions or number of transactions?

I don't think the fundamental adoption has any correlation with the dives in the price as you can see on your chart above. Actually your chart does show a correlation in April 2013.

[aminorex]

Value is  more important for fishers law.  Active nodes is more important for metcalfes law.  This is the chart which should theoretically and does in practice fit the price baseline.  Deviations from the baseline are not signal but noise under metcalfe.

[AnonyMint]

We already saw a decline on your chart correlating with the dump from $1200 in December. And now we see another decline on your chart starting recently. So now all aspects are corroborated.

So as I wrote upthread, the marginal price drives the adoption not the other way around. In other words as the speculative sentiment shifts, the adoption follows.

Edit: The number of unique address on your chart has diverged from the BTC price since February. One of the two has to capitulate to the other soon. Perhaps that is the confusion (Risto referred to) that has been holding the market up (or down depending on your perspective).

[aminorex]

We already saw a decline on your chart correlating with the dump from $1200 in December. And now we see another decline on your chart starting recently. So now all aspects are corroborated.

So as I wrote upthread, the marginal price drives the adoption not the other way around. In other words as the speculative sentiment shifts, the adoption follows.

Lag on that factor signal should be large, blended, and volatile.  Poisson perhaps.  Nontrivial to extract and low weight in a generative model.

[AnonyMint]

Okay then you agree that chart is inconclusive for us at this decision point?

Note your chart correlated with the prior major crashes.

[aminorex]

: The number of unique address on your chart has diverge from the BTC price since February. One of the two has to capitulate to the other soon.

Causal relationship is from n^2 to p.  p should capitulate.

[AnonyMint]

: The number of unique address on your chart has diverge from the BTC price since February. One of the two has to capitulate to the other soon.

Causal relationship is from n^2 to p.  p should capitulate.

Not if p is driving n. I think confidence and sentiment drives n, at least on the margins (there is probably a fundamental low frequency trend on n on which the marginal higher frequency is superimposed). Everyone was super bullish, now they are in the process of denial and trying to adjust to the new sentiment. Some of those n will throw in the towel, but they will be replaced by the stronger hands from the lower frequency trend. Then eventually those weak hands come rushing back in again.

[AnonyMint]

The trendline on the bottoms of your chart since Jan 2012 is below 100,000. Probably need to come back to that before we can move up again.

We are 33% too high.

[aminorex]

Okay then you agree that chart is inconclusive for us at this decision point?

Unsure what the decision is.  Several laws hold usefully.  At any moment zero or more may dominate.  Metcalfe may only dominate on fairly long time scales.  Fisher may dominate with higher frequency but has less predictive power because it hides so much structure:  You  really need to do marginal analysis to get the right MV.    If you are saying metcalfe cant call a bottom, yes, we are agreed.

[AnonyMint]

Fisher may dominate with higher frequency but has less predictive power because it hides so much structure

High IQ statement.

[aminorex]

Not if p is driving n.

I would only admit that variably lagged vector autocorrelation was evidence of a degree of feedback.  Driving is a strong word.  The feedback might drive occasional corrective jumps, rare and brief.

[AnonyMint]

Fisher may dominate with higher frequency but has less predictive power because it hides so much structure

High IQ statement.

I understand n^2 has more structural significance than p because it represents network effects. (connections between nodes are indicative of network effects at play)

I am thinking p has some influence on n on the margins, specifically the weak hands speculators.

The degree of this feedback would be proportional the overextention of weak hands due to irrational exuberance.

[creekbore]

You are ignoring the evidence that bitcoin adoption is still increasing, which makes a comparison with silver invalid.

Where is the evidence of this increased adoption though?

This is the chart which matters:
https://blockchain.info/charts/n-unique-addresses?showDataPoints=false&show_header=true&daysAverageString=7&timespan=2year&scale=1&address=

Exponential fundamentals remain in place.

Thanks for replying ...I can always rely on you for a sensible response
And I'm not being deliberately contrarian...I hope BTC succeeds (for purely selfish reasons) but having been through three bubbles and crashes now this one feels very different.

@AnonyMint raises the points I would (individuals have multiple wallets with little in them) and addresses are even more frequent per user (I rarely use the same address twice and imagine most casual users do the same...it infers a level of uniqueness to a tx).  Do you do the same?

The other charts seem to back up the theory that we have fewer people using BTC, so claiming 'this one is the important one' could be viewed as being selective too.

Given all the other evidence that points to the contrary, it seems rather hopeful to base ones attitude (ie bullish on BTC) on a single  chart.