Investor Cycles of Emotion, Ignorance

[intighet]

While it tends to be in my experience in this subforum as a lurker that this is no place for discussion of any depth, I am making an attempt. Indeed, that is to be tangentially relevant to the theme of this topic.

I am consistently astonished at the lack of understanding of the Bitcoin ecosystem and markets in general from users who have stuck through many cycles, and others who claim and otherwise air a general sense of economic learning. Case:

There are only a few large price swings that I cannot relate to any external event, in China or in the West.  In particular, I still have no explanation for the rally that lifted the price from ~450$ to ~650$ between May/20 and Jun/10.  But my guess is that it, too, was related to Chinese events and affected mostly the demand in China.

Jorge, though pessimistic, has some temporary insights. Follow the quote-link for the full context of the above. But, like many woefully ignorant speculators, falls into the line of thinking that news moves price. News does not move price, traders move price.

This assumption is so obvious to him, but obviously wrong to the minority who can see the clearer picture. This assumption is so obvious to him that any unexplained or inexplicable price movement must be attributable thereto. Let me share something with you, Jorge, and with the rest of the community.

Bitcoin price exhibits a certain type of scale-invariance. The contours of the price movement from the 2014 peak is merely and absolutely a large-scale version of the same flag-, pennant-, and other-patterns that pop up routinely on daily scales. The pseudo-rally that lifted the price, as Jorge notes, is clearly traders following some unseen and chaotic law of herd behavior. I will urge the reader to glance again at the YTD price graph and consider this that I am saying.

But intighet!- one may exclaim - you cannot claim that such a vertical movement can not be sourced to some real-world event! Let me ask you, dear reader, regarding the same triangular patterns in the daily candles, are each and every oscillation sourceable to a micro-event? Or is the contour of the price graph a mostly self-contained characteristic? It is my firm belief that the latter is truer than the former, by shades.

Moving on...

I'm actually considering if bitcoin is slowly dying out

Hashrate is declining sharply like never seen before

https://blockchain.info/sv/charts/hash-rate?showDataPoints=false&show_header=true&daysAverageString=1&timespan=1year&scale=0&address=

Wonderful! We must be close to a market bottom. How is it that such a senior member of the forum suffers from such self-blindness, myopia, and unelephantine memory that they can truly believe that this time, this terrible bear market, is the true death of Bitcoin?

But what, then, can explain the sharp decline? I will allow sgbett to elucidate this item:

As price rises so does hashrate, however hash rate lags price. As the price climbs people start to see mining gear as a better investment then buying BTC direct, so less money goes into the market and more goes into mining. This causes a cyclical top. When price tops out you still have a buttload of hash rate that is on order, waiting to be deployed, or in the process of coming online. As price drops, this puts pressure on miners to sell, and as the hash rate increases  so does selling pressure, at which point price starts to lag hash rate. As mining becomes less profitable the tide changes, all the money going into mining gear shifts back to buying cheap coin. Which drives up demand, only this time there is even more dollars chasing that limited supply (based on the principal that adoption is constantly increasing). As the prise starts to rise, miners are able to recoup their capital investment in dollar terms and start to think that perhaps holding is a better option, as the price is rising. This cuts supply and drives the price higher, and thus the cycle repeats.

Let us discuss this strange phenomenon of forgetting. It is not just the new traders. Funnily, I do imagine that if this kind of understanding extended beyond a minority that these mostly obvious patterns would be disrupted. We can discuss this very interesting characteristic as well, if there is intrigue.

Also, to distinguish myself from the throngs of patent idiots, I will make an outright prediction. When the events unfold I hope that I may earn some prestige. I project that we will see the beginning of another fractal-esque echo-bubble this week. What I mean is this; $365 does look like a "market bottom" on the same time-scale as the last bulge. We will see.

Note: This thread will be moderated, but not censored. Be forewarned that if you return to find your precious thoughts has vanished, it is not because I disagree with you, it is because your thoughts were far less precious than you believed.

[intighet]

Also have been hearing this not too seldom. Notice that, again, this is not a newbie member:

If bitcoin was worth 2 dollars a coin it will quickly cease to exist. At 2 dollars a coin it is not only NOT rpofitable to mine, it is actually going to cost people money to mine. Bitcoin needs miners to process transactions, without miners the blockchain freezes and no confirmations are made on your transactions, So at 2 dollars a BTC no one would want to mine much less be able to afford to mine.

Just a blatant misunderstanding of the mechanism of difficulty re-targeting.

[inca]

Also have been hearing this not too seldom. Notice that, again, this is not a newbie member:

If bitcoin was worth 2 dollars a coin it will quickly cease to exist. At 2 dollars a coin it is not only NOT rpofitable to mine, it is actually going to cost people money to mine. Bitcoin needs miners to process transactions, without miners the blockchain freezes and no confirmations are made on your transactions, So at 2 dollars a BTC no one would want to mine much less be able to afford to mine.

Just a blatant misunderstanding of the mechanism of difficulty re-targeting.

Protracted bear market declines test even the finest minds, sending impoverished newbies into the dark world of trollery, senior members feel the icy fingers of doubt intrude and the Heroes continue unabashed spouting faintly encouraging burblings and whimsy.

[dakota neat]

I agree that the decline in hashrate could be a good sign as producing BTC at this prices isn't profitable anymore. That means mining equip has to be shut down, which lowers supply and results in an increasing price. Why investors forget? Easy. Put them in a nine months long bear market where they lose 2/3 of the previous high with no sign of recovery. Their emotions will overrule any memory on fundamentals, basic investment strategies (buy low, sell high; never lose money, etc) and turn 90 percent of them into whiny bears. After that a new cycle is starting with a rise.

edit: typo

[raid_n]

... That means mining equip has to be shut down, which lowers supply and results in an increasing price.

The irony in light of intighet's previous post.....

Also have been hearing this not too seldom. Notice that, again, this is not a newbie member:

If bitcoin was worth 2 dollars a coin it will quickly cease to exist. At 2 dollars a coin it is not only NOT rpofitable to mine, it is actually going to cost people money to mine. Bitcoin needs miners to process transactions, without miners the blockchain freezes and no confirmations are made on your transactions, So at 2 dollars a BTC no one would want to mine much less be able to afford to mine.

Just a blatant misunderstanding of the mechanism of difficulty re-targeting.

Bitcoin adjusts the difficulty of mining so that the average emission of new blocks (== new coins) roughly stays the same.
The interval of re-targeting is 2016 blocks

[edit] unless you refer to exactly that 2016 block interval of lowered supply. But in the overall scale of things it is probably still quite negligible

[inca]

... That means mining equip has to be shut down, which lowers supply and results in an increasing price.

The irony in light of intighet's previous post.....

Also have been hearing this not too seldom. Notice that, again, this is not a newbie member:

If bitcoin was worth 2 dollars a coin it will quickly cease to exist. At 2 dollars a coin it is not only NOT rpofitable to mine, it is actually going to cost people money to mine. Bitcoin needs miners to process transactions, without miners the blockchain freezes and no confirmations are made on your transactions, So at 2 dollars a BTC no one would want to mine much less be able to afford to mine.

Just a blatant misunderstanding of the mechanism of difficulty re-targeting.

Bitcoin adjusts the difficulty of mining so that the average emission of new blocks (== new coins) roughly stays the same.
The interval of re-targeting is 2016 blocks

[edit] unless you refer to exactly that 2016 block interval of lowered supply. But in the overall scale of things it is probably still quite negligible

He he.

[mmortal03]

I agree that the decline in hashrate could be a good sign as producing BTC at this prices isn't profitable anymore. That means mining equip has to be shut down, which lowers supply and results in an increasing price.

Nothing having to do with the technical aspects of the protocol significantly lowers the supply per day other than a block halving. To state this another way, we get the same number of bitcoins per day no matter what the difficulty or hash rate is, accounting for slight variances here and there. The only thing that can lower the available supply from the perspective of the miners is for them to hold their bitcoins instead of selling them down through these price walls on the exchanges.

Anyway, these sell-offs have been of larger volume than the number of new bitcoins being mined daily, so it's more likely that whales, miners, or any other individuals who have hoarded their bitcoins over a long period of time are now selling them off in large amounts, not the freshly mined coins being sold off, that is dropping the price.

[ravenjt]

While it tends to be in my experience in this subforum as a lurker that this is no place for discussion of any depth, I am making an attempt. Indeed, that is to be tangentially relevant to the theme of this topic.

I am consistently astonished at the lack of understanding of the Bitcoin ecosystem and markets in general from users who have stuck through many cycles, and others who claim and otherwise air a general sense of economic learning. Case:

What are you? Some kind of mock-Victorian dandy, with long frilly shirt cuffs?
With all your flowery and pretentious language, not to say deeply arrogant and self-obsessed, you are making one fundamental flaw.

All of your thinking around behavioural finance, and in particular endogenous cycles due to herd behaviour, are based on experience from real commodity markets, equity markets and foreign exchange markets. All of these underlying assets have a real value - an anchor - to the wider economy.

Firstly, commodities have a fundamental real economic value to major users outside of the market. Copper is useful to manufacturers who are not speculators, for example. This role of copper cannot be easily replaced, not without massive investment in alternative technologies at least.

This is categorically not the case with BTC. In theory, BTC might gain an important role in the economy in the future, as a payment system, but this is not the case at present. BTC has no intrinsic value at present. It only has value as (some) people expect it to have value in the future.

Equities are similar to commodities, as they have real value to investors, who are not speculators, as the company continues to produce profits (dividends) whatever the share price. BTC produces no dividends.

Nor, like a currency, does BTC have a government managing its value. No one is going to increase the interest rate (there is no interest rate typically) to defend the value.

It's all down to what people perceive it to be worth, with no anchor.

Without an anchor, all of the dynamics change. Now you have a pure bubble situation, which is not often witnessed, but examples like the Dutch tulips come close (tulips have real value, but far lower than the bubble prices).

This means there is no reason to think that the price will rebound in the next few weeks. Frankly, the price could do anything, as there is no anchor. It's a pure gamble.

But history teaches us that late entrants to such bubbles lose money. This tells me that the price is more likely to keep falling, than rise strongly.

No doubt my negativity will be written off as trollism...

[cbeast]

I agree that the decline in hashrate could be a good sign as producing BTC at this prices isn't profitable anymore. That means mining equip has to be shut down, which lowers supply and results in an increasing price.

Hashrate is churning 6.32 blocks per hour. That's not declining. That's normal.

[intighet]

While it tends to be in my experience in this subforum as a lurker that this is no place for discussion of any depth, I am making an attempt. Indeed, that is to be tangentially relevant to the theme of this topic.

I am consistently astonished at the lack of understanding of the Bitcoin ecosystem and markets in general from users who have stuck through many cycles, and others who claim and otherwise air a general sense of economic learning. Case:

What are you? Some kind of mock-Victorian dandy, with long frilly shirt cuffs?
With all your flowery and pretentious language, not to say deeply arrogant and self-obsessed, you are making one fundamental flaw.

All of your thinking around behavioural finance, and in particular endogenous cycles due to herd behaviour, are based on experience from real commodity markets, equity markets and foreign exchange markets. All of these underlying assets have a real value - an anchor - to the wider economy.

Forgive me if my speech style comes across as odd. English is not my first language. Other Germanic languages have held closer to the grammar and syntax of older variations of English, so I am mildly amused by your characterisation . I also am partial to the natural expressiveness of English as that is mostly absent therefrom, so please bear with my pomp . Of course I do not mean to come across as arrogant. It just feels a deep shame to witness the state of the forum at a time when Bitcoin as a project is really flourishing.

Now, I must correct you in your false assumption. My experience comes mainly from observation of the Bitcoin price specifically. To counter your point, that I have truncated from the quote, there is plenty reason to believe that the price will bounce back, as it has many times before. Putting it in perspective, I was lurking the forums and studying the price back when Pirate was a celebrity and the 12,00 BTCUSD rate was something to be excited about, even as it had not advanced beyond the 33,00 BTCUSD bubble peak of previous summers. More perspective can be gained from remembering the the BTCUSD rate was 1/4 of what it is today, even yet, in this time of near desperation, just 1 year ago.

I see that you are a relative newcomer. For this I cannot fault you your pessimistic attitude, and I can appreciate that you seem to have a competent outlook which by itself is better than most. I urge you to take not a closer look but a broader view of the price graph at this moment. The overarching upwards trend has not yet been broken. This bear market can be depressing, but its contours should not be surprising. All of the action since the peak earlier this year obeys basic technical rules of price behavior, as I pointed to in the topic head, specifically the shape of a market in consolidation.

The reason I have "called the bottom" with such confidence is because even the intermediate contours since the peak have exhibited scale-invariance. If we look at the movement from the peak to the recent low, and then from the peak of the smaller rally to the present low, we see striking similarity. I am not calling for a resumption of the upwards movement towards a new ATH, but only a shorter-term reversal and another iteration of this pattern. This is currently playing out at the exchanges as I type.

Most of the "speculation" that goes on around these parts seems wildly misinformed, myopic, and unelephantine. It would do the community a great deal of good to take a little focus. Panicked and/or greedy traders which do not understand even the basics of the protocol do not make rational market participants. This increases risk, general unpleasantness, and negative reputation.

[dakota neat]

I agree that the decline in hashrate could be a good sign as producing BTC at this prices isn't profitable anymore. That means mining equip has to be shut down, which lowers supply and results in an increasing price.

Hashrate is churning 6.32 blocks per hour. That's not declining. That's normal.

'Churning' is the right term. The swings are wild. Between 180 PH and 280 PH in 20 days.

[Hunyadi]

Very very refreshing thread!

[Torque]

I am consistently astonished at the lack of understanding of the Bitcoin ecosystem and markets in general from users who have stuck through many cycles, and others who claim and otherwise air a general sense of economic learning. Case:

There are only a few large price swings that I cannot relate to any external event, in China or in the West.  In particular, I still have no explanation for the rally that lifted the price from ~450$ to ~650$ between May/20 and Jun/10.  But my guess is that it, too, was related to Chinese events and affected mostly the demand in China.

In my mind, the price movement in May from $420 to $680 is an Occam's Razor, the easiest event to explain of all the past year.  

In April The Mt. Gox implosion had just happened, and after that the market completely bottomed out for 4 weeks straight.  It was a completely dead market, with no trading activity at all.  Forum participation had fallen to an all time low.  People were saying that bitcoin was dead, and that the price might even fall further.  But it didn't at that time.

So after 4 weeks sliding along at ~$420, at that time it was EVERYONE'S opinion, including the market makers, that the bottom had been found and that the only way to go from there was UP.  Thus the sudden rush for major money sitting on the sidelines to get back into the market for what they perceived at that time as likely the lowest price level of the year.  People thought that in just a few months from then (by June/July, maybe August at the latest) we would probably have another ATH.  Of course now in hindsight, we see that it didn't turn out that way.  And when it didn't happen when people thought it would, of course the market eventually corrected back down again.  This brings us to where we are today.

It's such an obvious common sense explanation, I'm not sure why supposed 'smart' people like JorgeStolfi can't grasp this.

Edit:  Also if you go back and look at the charts, you'll see that this same "mini-rally failed" pattern happened at the tail of the 2011 bubble as well.  It is an observed and well known market phenomena in other speculative markets.

[cbeast]

I agree that the decline in hashrate could be a good sign as producing BTC at this prices isn't profitable anymore. That means mining equip has to be shut down, which lowers supply and results in an increasing price.

Hashrate is churning 6.32 blocks per hour. That's not declining. That's normal.

'Churning' is the right term. The swings are wild. Between 180 PH and 280 PH in 20 days.

Those are statistical averages. Don't trust those numbers over short periods of time. It's also normal for miners to weigh buying instead of mining to slow the difficulty increases. Twenty days is not a good sample period to make sweeping predictions about wild swings.

[intighet]

I am consistently astonished at the lack of understanding of the Bitcoin ecosystem and markets in general from users who have stuck through many cycles, and others who claim and otherwise air a general sense of economic learning. Case:

There are only a few large price swings that I cannot relate to any external event, in China or in the West.  In particular, I still have no explanation for the rally that lifted the price from ~450$ to ~650$ between May/20 and Jun/10.  But my guess is that it, too, was related to Chinese events and affected mostly the demand in China.

In my mind, the price movement in May from $420 to $680 is an Occam's Razor, the easiest event to explain of all the past year.  

In April The Mt. Gox implosion had just happened, and after that the market completely bottomed out for 4 weeks straight.  It was a completely dead market, with no trading activity at all.  Forum participation had fallen to an all time low.  People were saying that bitcoin was dead, and that the price might even fall further.  But it didn't at that time.

So after 4 weeks sliding along at ~$420, at that time it was EVERYONE'S opinion, including the market makers, that the bottom had been found and that the only way to go from there was UP.  Thus the sudden rush for major money sitting on the sidelines to get back into the market for what they perceived at that time as likely the lowest price level of the year.  People thought that in just a few months from then (by June/July, maybe August at the latest) we would probably have another ATH.  Of course now in hindsight, we see that it didn't turn out that way.  And when it didn't happen when people thought it would, of course the market eventually corrected back down again.  This brings us to where we are today.

It's such an obvious common sense explanation, I'm not sure why supposed 'smart' people like JorgeStolfi can't grasp this.

Edit:  Also if you go back and look at the charts, you'll see that this same "mini-rally failed" pattern happened at the tail of the 2011 bubble as well.  It is an observed and well known market phenomena in other speculative markets.

Yes, this cycle is a good common-sense explanation for the oscillations we see even after daily- and other-scale price movements. I believe these feedback loops reliably force the contours of the price graph into triangular and other patterns. It always makes me laugh to see the fools in the WALL OBSERVER thread alternatively express their bewilderment during the "correction" phase and excitement after each rebound, in real-time, following any indicative movement .

[cbeast]

I am consistently astonished at the lack of understanding of the Bitcoin ecosystem and markets in general from users who have stuck through many cycles, and others who claim and otherwise air a general sense of economic learning. Case:

There are only a few large price swings that I cannot relate to any external event, in China or in the West.  In particular, I still have no explanation for the rally that lifted the price from ~450$ to ~650$ between May/20 and Jun/10.  But my guess is that it, too, was related to Chinese events and affected mostly the demand in China.

In my mind, the price movement in May from $420 to $680 is an Occam's Razor, the easiest event to explain of all the past year.  

In April The Mt. Gox implosion had just happened, and after that the market completely bottomed out for 4 weeks straight.  It was a completely dead market, with no trading activity at all.  Forum participation had fallen to an all time low.  People were saying that bitcoin was dead, and that the price might even fall further.  But it didn't at that time.

So after 4 weeks sliding along at ~$420, at that time it was EVERYONE'S opinion, including the market makers, that the bottom had been found and that the only way to go from there was UP.  Thus the sudden rush for major money sitting on the sidelines to get back into the market for what they perceived at that time as likely the lowest price level of the year.  People thought that in just a few months from then (by June/July, maybe August at the latest) we would probably have another ATH.  Of course now in hindsight, we see that it didn't turn out that way.  And when it didn't happen when people thought it would, of course the market eventually corrected back down again.  This brings us to where we are today.

It's such an obvious common sense explanation, I'm not sure why supposed 'smart' people like JorgeStolfi can't grasp this.

Edit:  Also if you go back and look at the charts, you'll see that this same "mini-rally failed" pattern happened at the tail of the 2011 bubble as well.  It is an observed and well known market phenomena in other speculative markets.

Yes, this cycle is a good common-sense explanation for the oscillations we see even after daily- and other-scale price movements. I believe these feedback loops reliably force the contours of the price graph into triangular and other patterns. It always makes me laugh to see the fools in the WALL OBSERVER thread alternatively express their bewilderment during the "correction" phase and excitement after each rebound, in real-time, following any indicative movement .

Hindsight is 2020. I am always amused by the conceit people hold by playing Monday Morning Quarterback.

[intighet]

Hindsight is 2020. I am always amused by the conceit people hold by playing Monday Morning Quarterback.

Your accusation is unfounded. Torque's speculation may only be intuitive in hindsight, but the pattern itself is recurrent and consistent through the last three bubble events. The models of consolidation (flag, pennant, etc) are also very predictive of the contours of these large price movements.

The prediction that the $365 bottom will hold seems to have been validated by earlier price action, too.

[cbeast]

Hindsight is 2020. I am always amused by the conceit people hold by playing Monday Morning Quarterback.

Your accusation is unfounded. Torque's speculation may only be intuitive in hindsight, but the pattern itself is recurrent and consistent through the last three bubble events. The models of consolidation (flag, pennant, etc) are also very predictive of the contours of these large price movements.

The prediction that the $365 bottom will hold seems to have been validated by earlier price action, too.

Are you making that up? You pulled my remark out of context. I was not responding to  that declaration. I was responding to your claim that there is a "common-sense" cycle. If its common-sense, then why aren't you a billionaire?

[oda.krell]

Nothing wrong with the gist of your argument, OP, but also nothing particularly insightful...

Exemplified by:

Wonderful! We must be close to a market bottom. How is it that such a senior member of the forum suffers from such self-blindness, myopia, and unelephantine memory that they can truly believe that this time, this terrible bear market, is the true death of Bitcoin?

That "unelephantine memory" of the market, as you like to call it, extends to 2011, 2010 with some good will, and includes a whole 3 cycles of what you now seem to treat like a fractal. Actually, the 3rd one is still underway.

Point is, as you correctly remind the not-so-new newbies, a bear market doesn't mean the end of Bitcoin is near.

The other point is, as I remind the ever-so-confident crypto enthusiasts, this is still one big, extremely shaky experiment. The fact that it didn't fail the last two times doesn't provide a very strong basis for a frequentist type argument that it's not likely to fail at the end of the third "cycle".

[intighet]

Hindsight is 2020. I am always amused by the conceit people hold by playing Monday Morning Quarterback.

Your accusation is unfounded. Torque's speculation may only be intuitive in hindsight, but the pattern itself is recurrent and consistent through the last three bubble events. The models of consolidation (flag, pennant, etc) are also very predictive of the contours of these large price movements.

The prediction that the $365 bottom will hold seems to have been validated by earlier price action, too.

Are you making that up? You pulled my remark out of context. I was not responding to  that declaration. I was responding to your claim that there is a "common-sense" cycle. If its common-sense, then why aren't you a billionaire?

No common-sense cycle, just a few common-sense explanations for an apparent cycle that seem plausible.

EDIT: Answer to your second question is finite margin constraints.