

Want To Know Where BTC Prices Are Going? Watch USD - cgi_man
http://www.thegenesisblock.com/want-to-know-where-btc-prices-are-going-watch-usd/

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AnIrishDuck
TFA's author really needs to state what correlation coefficient [1] they're
using if they're going to throw out numbers. Primary research like this,
apparently done without a solid knowledge of statistics, always sets off my
alarm bells.

> The predictive nature of USD for bitcoin may surprise some, but the
> underlying fundamentals of their high correlation may make sense, at least
> for the time being. Historically, the US dollar has served as a risk-averse
> asset, gaining value as traders pull out of other financial products during
> periods of uncertainty and doubt. Bitcoin seems to be following the same
> path.

A far more likely hypothesis is that the vast majority of bitcoin users simply
want a proxy for USD for doing business on e.g. the silk road.

1\.
[http://en.wikipedia.org/wiki/Correlation_and_dependence](http://en.wikipedia.org/wiki/Correlation_and_dependence)

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datamonger
It's denominated in USD already, so increases in USD should be priced in.

Also, Silk Road has become a small part of bitcoin transactions.

~~~
superprime
It is not denominated in USD. It's a currency, and like any other currency you
can exchange it for others, including USD, which is why you often see exchange
spot prices in USD.

~~~
datamonger
The exchange rate is denominated in USD. It's the BTC/USD rate... What's in
the denominator

~~~
AnIrishDuck
_One_ exchange rate is BTC - USD. That does not make the currency itself USD
denominated. Bitcoin is almost always denominated in BTC these days. There are
other bitcoin denominations, like the Satoshi [1], but these are rarely used
as BTC has not appreciated enough in value for them to be useful. You seem to
be confused about what denomination means in the context of currency, see [2].

1\.
[https://en.bitcoin.it/wiki/FAQ#What_do_I_call_the_various_de...](https://en.bitcoin.it/wiki/FAQ#What_do_I_call_the_various_denominations_of_bitcoin.3F)
2\.
[http://en.wikipedia.org/wiki/Denomination_(currency)](http://en.wikipedia.org/wiki/Denomination_\(currency\))

~~~
ronaldx
On the contrary: you have confused 'denomination' and 'denominated':
[http://www.thefreedictionary.com/denominated](http://www.thefreedictionary.com/denominated)

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zjonsson
This analysis is interesting, however I have to comments on the methodology:

* Same measure

Comparing USD/INDEX with BIT/USD is a little bit like comparing apples and
oranges, as the underlying measure for each of the time-series is different.

Multiplying BIT/USD with USD/INDEX gives us a time-series that is BIT/INDEX.
Subsequently USD/INDEX can be compared with the new BIT/INDEX to get the
correlation between USD and BIT with the INDEX basket as a measure.

* Correlation is only relevant for non-integrated series

It's well known that correlation for any unrelated random walks can easily be
very high (positive or negative) in a spurious and random manner. The solution
here might be to take the take first-difference (geometrical) of both series
(de-integrating) and then check the resulting differences for correlations.

~~~
kbenson
> first-difference of both series (de-integrating)

Isn't that just the derivative, in Calculus?

~~~
zjonsson
For continuous known functions we would look at the mathematical derivative
(using stochastic calculus). For sparse sample data with an unknown
derivative, we resort to calculating differences between consecutive numbers.

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minimax
This is noise. If you start looking around for arbitrary financial timeseries
that track one another over a short period, you will find spurious
correlations. I especially appreciate the author's thesis about the cause:

 _Historically, the US dollar has served as a risk-averse asset, gaining value
as traders pull out of other financial products during periods of uncertainty
and doubt. Bitcoin seems to be following the same path._

Yes, bitcoin is definitely right up there behind USD as a low risk asset. Uh
huh.

~~~
CrunchyJams
It's not a low risk asset. It's an alternative asset that for the last few
months has been used in risk-off periods. There's a difference. Judging by the
last sentence of the article, I don't think he expects it to continue trading
like that.

~~~
minimax
You seriously think that people are selling their risky assets and then
putting that money in bitcoins?

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CrunchyJams
You'd really think it would move opposite USD. That correlation is
ridiculously high, even over just two months. Can't imagine it lasts forever.

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apalmer
Bitcoin is an extremely highly volatile 'asset' with nothing backing its value
except optimism.

I can only guess that at this point whenever the market sees it increasing
against the dollar the majority of the market immediately takes profit by
transitioning to USD. Perhaps also most accepters of bitcoin use it as a USD
proxy, so the price of say socks on whateveracceptsbitcoin.com isnt .05
bitcoins, but is whatever number of bitcoins equals $2.00 USD, and the
bitcoins are immediately converted to dollars after the transaction is
complete.

I think those ideas may explain what keeps bitcoin from exploding above its
current correlation to USD, what keeps it from radically dipping, I have no
clue.

~~~
baddox
> with nothing backing its value except optimism.

That's not strictly true. It's also backed by the undeniable utility of having
a decentralized transaction log that is virtually impossible to compromise in
an economically viable way.

~~~
betterunix
"virtually impossible to compromise in an economically viable way."

Just like the enigma cipher...

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pixie_
Bitcoin has been at a few 'long term plateaus' right now it's at $100, before
it was stuck at $10 for awhile and $5 before that. So yea, in plateau mode,
following the dollar makes sense. No doubt though it will jump again.

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ianstallings
I'm not sure if this data can withstand scrutiny just yet but I do think it
might be an interesting hypothesis because aren't all currencies and markets
are intrinsically linked?

Also, because of that wouldn't it be reasonable to say that all currencies are
therefore linked to the current price of oil due to the _petrodollar_
controlling most payments for oil, and in turn all currencies would possibly
follow the same price curves? I'd be interested to see a third data point, the
price of oil, on the chart.

