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Author Topic: Non-spreadsheet long-term predictions  (Read 8644 times)
Joe200
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May 08, 2014, 04:36:31 PM
Last edit: November 23, 2014, 04:07:54 AM by Joe200
 #1

Latest update: 2014-11-22. See below for history.

The spreadsheet extrapolation. Many people plot log price versus time, find the best fitting line, and extrapolate it. This is what they get:

Code:
             Estimate Std. Error t value Pr(>|t|)    
(Intercept) -1.615e+00  4.340e-02   -37.2   <2e-16 ***
day          5.618e-03  4.729e-05   118.8   <2e-16 ***

R-squared:   0.8995

R2 = 90%! This model MUST be correct. Add in the bias -- if this model is correct, we will be making 0.56% per day forever, compounded. Who doesn't like that.

What others point out in response is that the trend cannot go on forever. Although, even if log price vs. time is an S-shaped curve, we really don't know where we are in that curve. If we are near the beginning of that curve, then the linear extrapolation is fine. Or are we further along?

Even if we are near the beginning of the S-curve, there is another issue. OLS assumes that the residuals are independent of each other, which, in a time series, is clearly and completely false. And we should talk about confidence intervals as well, not just a point estimate.

A better model. Here is a very basic model, the assumptions for which are actually not violated. I call it the Basic Long-Term Model (BLTM).

Code:
diff log price ~ Normal(mu, sigma)


The difference in the log price, which is approximately the daily percent return, has a Normal distribution with mean mu and standard deviation sigma. Am I saying that this is the "true" correct model? No. This is a useful simplification and an improvement on the log price chart extrapolation. It's easy to perform these calculations, easy to explain, and easy to understand.

The model does not take into account the fact that the model parameters -- mu and sigma -- cound change over time. That is simply outside the scope of this basic model. I am using all available data to estimate the parameters.

Predictions. Here are the parameter estimates and the prediction of this simplistic model.

Code:
 n.data       from         to      mu  sigma z.stat
1  1,579 2010-07-17 2014-11-22 0.00561 0.0602 0.0932
Code:
  n.fut       date p_5  p_25   p_50   p_75    p_95
1      0 2014-11-22  NA    NA    352     NA      NA
2      1 2014-11-23 321   340    354    369     391
3      7 2014-11-29 282   329    366    408     476
4     30 2014-12-22 241   333    417    522     720
5     39 2014-12-31 234   339    438    567     820
6     61 2015-01-22 225   359    496    685   1,090
7     91 2015-02-21 222   394    587    874   1,550
8    122 2015-03-24 224   438    698  1,110   2,170
9    152 2015-04-23 230   489    826  1,400   2,970
10   183 2015-05-24 239   550    983  1,760   4,050
11   213 2015-06-23 250   619  1,160  2,190   5,430
12   244 2015-07-24 263   700  1,380  2,740   7,300
13   274 2015-08-23 278   791  1,640  3,390   9,670
14   304 2015-09-22 294   895  1,940  4,200  12,800
15   335 2015-10-23 314 1,020  2,310  5,230  17,000
16   365 2015-11-22 335 1,150  2,730  6,460  22,300
17   404 2015-12-31 365 1,360  3,400  8,480  31,600
18   731 2016-11-22 835 5,640 21,300 80,300 543,000

* In agreement with the log price chart extrapolation, overall, bitcoin has been making 0.56% per day.
* According to the median scenario (p_50), we will hit 1,000 again sometime in early summer 2015.
* According to the pessimistic scenario (p_5), we won't get back to 1,000 even in two years.
* According to the optimistic scenario (p_95), we will break 10,000 by early fall 2015.
* Just for fun -- projected price on 2014-12-31 is 438.

Break-even point. If you buy today and thing go bad, how long will you have to hold to get your fiat back?

Code:
 n.fut       date p_5  p_25  p_50  p_75   p_95
1   388 2015-12-15 352 1,270 3,110 7,580 27,400

388 days.

Comments?

History.
* 2014-05-08
* 2014-06-26
* 2014-11-19
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jamesc760
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May 08, 2014, 05:37:12 PM
 #2

Nice, Joe!
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May 09, 2014, 01:56:20 AM
 #3

Cheers for the prediction and explanations. I currently have a large big order and waiting for the price to drop, but I hope your models will display a degree of accuracy and we hit $4890 this time next year.

Thanks again for post - Good effort!
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May 09, 2014, 11:29:37 AM
 #4

sweet! could be handy
blatchcorn
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May 09, 2014, 11:32:24 AM
 #5

This post deserves more visibility
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May 09, 2014, 02:43:39 PM
 #6

Great estimations. 
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May 09, 2014, 03:48:10 PM
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Cheers for the prediction and explanations. Thanks again for post - Good effort!

This post deserves more visibility

Outstanding charting and mathematics. Thanks!
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May 09, 2014, 03:55:52 PM
 #8

Great post and good math. The only thing I want to add to get this more "visibility" is that you should actually add some visual charts (graphs) to support your predictions

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May 09, 2014, 11:58:18 PM
 #9

2016-05-08 p_95 me want  Shocked Shocked Grin

Bitcoin is like a box of chocolates. You never know what you're gonna get !!
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May 10, 2014, 12:11:59 AM
 #10

2016-05-08 p_95 me want  Shocked Shocked Grin

I was reading a few old threads (2012 ish i think) where price was 10-30.  People said 1k would happen in 2016.  No one mentioned 100 (which came shortly after).  1k happened 2013.  Many people say 1-8k 2015.  Not sure, lets see what happens 2015-2016.  
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June 03, 2014, 01:17:16 PM
 #11

2016-05-08 p_95 me want  Shocked Shocked Grin

I was reading a few old threads (2012 ish i think) where price was 10-30.  People said 1k would happen in 2016.  No one mentioned 100 (which came shortly after).  1k happened 2013.  Many people say 1-8k 2015.  Not sure, lets see what happens 2015-2016.  

100 and 1K were both in 2013, yes?

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June 03, 2014, 04:59:56 PM
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Interesting. Going to look into this when I have time.

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June 03, 2014, 06:12:24 PM
 #13

2016-05-08 p_95 me want  Shocked Shocked Grin

I was reading a few old threads (2012 ish i think) where price was 10-30.  People said 1k would happen in 2016.  No one mentioned 100 (which came shortly after).  1k happened 2013.  Many people say 1-8k 2015.  Not sure, lets see what happens 2015-2016.  

We don't even know what surprises are in store for last half 2014 even!
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June 03, 2014, 06:13:31 PM
 #14

Good and realistic predictions and if your predictions are correct then I'll be one happy man.

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June 23, 2014, 08:14:51 PM
 #15

This post deserves more visibility.
blatchcorn
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June 23, 2014, 08:25:22 PM
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This post deserves more visibility.
I concur  Grin
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June 23, 2014, 09:28:56 PM
 #17

Of all the dubious log linear extrapolation models, the least dubious one.

(yes, I mean that as a compliment.)


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June 23, 2014, 11:35:54 PM
 #18

Of all the dubious log linear extrapolation models, the least dubious one.

(yes, I mean that as a compliment.)

For sure.

However I say chart-based extrapolation still doesn't work longterm. Extrapolation can't predict major mood changes of market participants or sudden events. Whatever type of extrapolation you use, it is always just projecting the main trend into the future.

Such methods may work quite a long time, but suddenly they will fail. For better predictions you would have to monitor constantly the fundamentals that drive market mechanics (for example adoption rate, adoption pool (people likely to become adopters), transaction volume growth, businesses accepting btc).
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June 24, 2014, 07:39:42 AM
 #19

Of all the dubious log linear extrapolation models, the least dubious one.

(yes, I mean that as a compliment.)

For sure.

However I say chart-based extrapolation still doesn't work longterm. Extrapolation can't predict major mood changes of market participants or sudden events. Whatever type of extrapolation you use, it is always just projecting the main trend into the future.

Such methods may work quite a long time, but suddenly they will fail. For better predictions you would have to monitor constantly the fundamentals that drive market mechanics (for example adoption rate, adoption pool (people likely to become adopters), transaction volume growth, businesses accepting btc).

Which is what gbianchi is doing in this thread...

https://bitcointalk.org/index.php?topic=441336.0

... modeling network growth (which is then related to price) based on zero balance addresses.

However, Joe200's model is mathematically more mature. How about a collaboration?


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June 24, 2014, 01:34:48 PM
 #20

That P_50 has me hot and bothered.. let me take you out OP hehehe.
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