
Bitcoin Bubble Burst will warn you if Bitcoin is about to crash - everdev
https://techcrunch.com/2017/12/03/bitcoin-bubble-burst-will-warn-you-if-the-bitcoin-dream-is-about-to-crash-down
======
jjxw
Sounds like a classic case of overfitting training data. Bitcoin and
cryptocurrency as an asset class is so nascent that I wouldn't be making any
significant bets on what the algorithm outputs even if the cross validation is
good.

As with all investing claims, the pertinent question to ask is "if this works
so well, why are you spending time marketing your method instead of making
boatloads of money using this system you developed?"

~~~
travmatt
I went to a tech conference this past year, one of the talks was regarding
machine learning and investing. I remember the speaker being distinctly
negative on the ability of machine learning to predict prices accurately such
that his firm could make money. He was much more optimistic about using
machine learning to understand the forces that driving prices

------
carbocation
It not only predicts a "bubble burst," but also the price of Bitcoin in the
near future. If such a system were actually accurate, what would compel anyone
to share it publicly?

~~~
dest
If everybody uses that software and follows trading advice, the price could
get more predictable. Creators could then make lots of money. /s

~~~
everdev
Knowing the future is much more valuable than any monetization model.

------
throwaway0255
If Bitcoin continued its 2017 growth rate for 5 more years, the market cap of
Bitcoin would be about 140 quadrillion dollars, which is about 300x the value
of all public and privately owned assets in the entire world.

~~~
albertgoeswoof
This is a good point. A lot of people are investing expecting 1000x returns
based on historical data, but that ship has long sailed.

I wonder if it’s possible to use power and cpu manufacturing capacity to work
out a maximum price the network could support.

~~~
logicallee
> A lot of people are investing expecting 1000x returns based on historical
> data, but that ship has long sailed.

You are right. A more reasonable expectation is a 5x return. Analysis below.

\-----------

There have been approximately 187,200 tonnes of gold ever mined (+/\- 20%, I
know I know), which at current spot prices of $41.56 / gram means that the
value of all gold ever mined -- almost all of which is held in circulation, or
ownership -- is $7.7 trillion.

Bitcoin is a similar store of value in that its worldwide existence increases
slowly. It is expensive and a pain to transfer bitcoin, but so is gold when
used for monetary purposes.

Likely a good estimate for the "proper" market cap of bitcoin is $7.7
trillion, matching the market cap of all gold ever mined. While many bitcoins
were lost, the bitcoins still in circulation are substantial in quantity and
have a higher velocity than gold.

Bitcoin is susceptible to technical problems, but the price of gold is
predicated on the difficulty of transmogrifying any other element (aluminum,
say) into gold. But I include this paragraph just to say that in no way is
there some metaphysical guarantee that gold will be equally scarce forever,
just as there are issues that could happen to the bitcoin network.

For the next 3-4 years, a decent target for an "appropriate" price of bitcoin
is parity with gold - $7.7 trillion, say, or about 40 times its current price.

In my personal opinion you should consider the fundamental price of bitcoin to
be around 40 times its current price, which you should then discount by
certain systemic risk.

If you have gold it cannot just disappear (without being stolen), but bitcoin
can disappear if its network has some kind of systemic problem.

An extremely safe way to generate 5x return on any amount of money (up to
about fifty billion dollars) in the next five years, is to buy bitcoin after
finding an credible insurer who will sell a policy against a systemic problem
that causes it to go to 0, or against your personal bitcoins being stolen.

The risk of the bitcoin network having some unforeseen problems is vastly
undervalued today - nobody seems to consider that possibly it will not be a
functional network in five years, at all.

Bitcoin is essentially distributed (peer2peer). I searched Google to see if 5
year old p2p networks typically still are up and healthy - you can read the
author's findings here: [https://www.vice.com/en_au/article/vdqepm/illegal-
downloadin...](https://www.vice.com/en_au/article/vdqepm/illegal-downloading-
sites-of-my-youth-p2p-limewire-kazaa)

In terms of technology few p2p networks survive 5 years. I would take a 5-year
position on bitcoin only if I could adequately protect against this risk.

Bitcoin is certainly not a bubble and there is next to no risk of an
adjustment of losing, say, 98% of its value, while containing to remain
healthy at 2% of its current value by its legitimate users. It is not a ponzi
scheme. It is not subject to sudden hyperinflation.

You do not have to worry about this eventuality if you are considering a long
position in bitcoin. You don't have to watch its price day to day. You do have
to have a very active policy against its going to zero for technical reasons.
If you don't have a signed contract with a traditional, brick-and-mortar
insurer, you should not have any position in bitcoin, period.

Nobody is giving technical network problems the correct probability of
surfacing. They're idiots.

Let me put it in these terms for you:

-> I would bet better than even money that the price of bitcoin on December 3rd, 2021 will be more than 5x its current price, if it is at least 10% of its current price.

-> I would not bet even money that the price of bitcoin will be >= 10% of its current price.

Do you understand these two constraints? You can get a 5x return, easily - as
long as you ensure against a total loss, which is very, very likely.

~~~
throwaway0255
I get it, I just don't know who would sell such insurance? It'd probably be
extremely expensive to purchase, extremely expensive to write the contract,
extremely expensive to litigate when they want to claim the losses weren't
caused by systemic tech failure, etc.

Those costs would take so much off the top that you'd probably need to make
this play with tens of millions just to offset those costs and make the
potential returns worthwhile.

Also, by your argument, if bitcoin is going to be treated as a stable
deflationary value store like gold, then that should put downward pressure on
the price of gold (because they would be competing asset classes). It should
also mean that bitcoin will eventually stabilize and merely reflect inflation.

But the appeal of gold is that it's a hard asset and it's stable. Bitcoin is
the opposite of that. Why would its price be based on it being treated like
gold when it isn't and will never be anything like gold?

~~~
logicallee
No real comment on anything you've written (which seems a good reply to me).
Right, I think it could be quite expensive to insure. My point is that if you
are investing $10 million into bitcoin today you will likely make a great
return by Dec' 2021 if you actually spend literally $6 million of that (60%)
on insurance that pays out only if it goes to less than 10% of its current
price or gets stolen from you. So out of $10 million invested, only $4 million
makes it into your position * 5x = $20 million, or 2x return over 4 years for
an 18.9% year over year return. (1.189^4 = 2, i.e. the left side is the
compound interest formula.)

I also have perhaps these two quite minor points,

\- Why do you say gold is stable? (You write "the appeal of gold is that it's
a hard asset and it's stable"). Here is its real price over just the past 10
years:
[https://www.kitco.com/charts/popup/au3650nyb.html](https://www.kitco.com/charts/popup/au3650nyb.html)
\- doesn't seem particularly stable to me. It seems more likely that the
appeal of gold is 1) its historical use, and general acceptance as value, and
2) its inherent scarcity, i.e. its value reflects its scarcity.

\- Also you say bitcoin would "reflect inflation" \- but where do you think
inflation comes from? Wikipedia says it's just a direct effect of an increase
in the money supply, but bitcoin doesn't have such a mechanism.

------
magnetic
<conspiracy>

To all those who claim that it can't predict the bubble burst accurately, you
are probably right, but it may not matter at all to the author.

If this software gets seeded to many people - and presumably the target market
is Bitcoin investors - the author may have a simple way to trigger a selloff.
All you have to do is send a push to your app users saying "Burst About to
Happen!" and watch the selloff happen from your panicky users.

If you can trigger a selloff at will, you can start playing the market
(short).

The nice thing about it is that it's a self fulfilling prophecy at that point.
You can trigger the sell off manually, and those receiving the notification
will say "man, this app is really good, it really predicted it!", and will be
conditioned to sell off the next time they get another notification.

</conspiracy>

~~~
taneq
Given the volatility of the market, this isn't as wild a theory as it sounds,
especially when you account for not only the app's direct impact but also the
following chain reaction of news stories.

------
n8n3k
Hard to believe that any one who could credibly predict this would give it
away, instead of making money with shorting Bitcoin.

Seems more plausible that this is itself something that's supposed to crash
Bitcoin, so that the owner can make money selling it short. If it isn't,
someone will hack it and ...

------
natalyarostova
There is a difference between the naive sample size (just your raw n value),
and the information content of your sample size.

How many crashes has bitcoin had? Depending on how you measure it, somewhere
between 3-10? And even then, these crashes varied in magnitude, and some
occurred at times when bitcoin was fundamentally different than it is now.

The point is, you can have the richest data sources you want, at any time
granularity, but you can't solve a hard information problem, which is that you
only have a small small handful of true points to train on.

The rest of the training data is going to be extrapolating or learning from
small movements, which should have different dynamics from crashes.

------
0x4f3759df
It crashed $1200 yesterday ($11868 -> $10600) when it approached $11868 which
seems arbitrary until you realize that 10000€ = $11868, which triggered a
round of sell orders.

~~~
fjsolwmv
That tells me people are just wildly speculating

------
shantanubala
This sounds like a great way to manipulate the price of Bitcoin

------
drumhead
If a system is good at predicting prices and makes you money, why sell it to
others. It would be worth millions.

The quant hedgefunds spend millions developing "black boxes" to carry out
trades and guard the secrets within like it was their own life. And yet here
we have these people giving it away or selling it for 2.99 on the Play store.

------
thisisit
> _Using Artificial Intelligence_ to predict Crypto currency value.

The AI thing had me rolling on the floor with laughter. Some shitty TA stuff
used to "predict" cryptocurrency value. The lengths people are going to
incorporate the words - AI/ML into their products.

------
kmfrk
Even AWS can't get their status pages right, how about people don't put their
faith in something like this.

------
golemotron
What could possibly go wrong?

