
BTC bubbles - herrherr
http://scottlocklin.wordpress.com/2013/04/17/btc-bubbles/
======
dragontamer
When a worthwhile Futures market hits, then BTC will really stabilize.

He's right. Without shorting, options, and future contracts... it becomes
impossible for BTC to stabilize in the wake of media exposure. Add on to the
fact that the majority of BTC users seem to be idiots (ie: they look at the
price as some sort of indicator of BTC penetration, as opposed to more useful
statistics), and you've definitely got a situation where bubbles will
continuously form.

Anyway, I don't necessarily think he's right. There will always be some
function that fits some data... and he may have gotten lucky this time that
data fits his model. Either way, it is certainly an interesting piece to read.
And his model seems to have solid theory behind it.

~~~
jvm
> When a worthwhile Futures market hits, then BTC will really stabilize.

I agree that a futures market would be a stabilizing force, but other volatile
commodities are still highly volatile even with futures markets.

The reason most currencies aren't volatile is that they have a central bank
behind them actively manipulating their supply to make sure they are stable
relative to some other asset or basket of goods. In the case of the USD, the
dollar is roughly pegged to CPI. Unbacked commodities that aren't pegged by a
central authority tend to be on a highly volatile random walk, with or without
futures markets.

EDIT: Looks like I mistyped, maybe it looked like I was saying the opposite.

~~~
omellet
Other commodities are volatile for different reasons. Natural gas is volatile
because it's literally volatile, so storing and shipping it is expensive.
Grains are volatile because of variable growing seasons. Onions are volatile
because US Congress banned futures markets for onions. Even so, none of these
are nearly as volatile as BTC has been.

~~~
jvm
Right, my point is just that futures markets will of course reduce BTC
volatility, but they're not going to make it nearly as stable as TIPS or
something. Parent was saying it was going to "really stabilize."

Speculating, I think an optimistic outcome is that it will end up with
volatility similar to an equity index (which themselves effectively have
futures markets).

~~~
omellet
In a perfect world, you're right. But it's inconceivable that there would be a
BTC futures market with enough liquidity to make this happen, since a) the BTC
supply is relatively small and b) no CFTC-regulated exchange is going to touch
BTC as long as it exists its current quasi-legal state.

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kiba
_What can we learn from this? You can see a “fair value” of around $20/BTC due
to be hit in a few weeks, with perhaps a full mean reversion to $10/BTC._

We now have a testable prediction. Let see if bitcoin actually falls to to 20
and 10 dollars per bitcoin within 4 weeks.

~~~
Nursie
I'd almost be surprised if it doesn't hit that within a few weeks.

Not necessarily as a stable value, but in the last few days it's bounced
around madly between about 50 and 100 dollars. I think at this point it's fair
to say that nobody has any idea of the real 'value' of a bitcoin, and mad
speculation is still the order of the day.

~~~
stephencanon
> I think at this point it's fair to say that nobody has any idea of the real
> 'value' of a bitcoin.

Nonsense. They have no use, not even as a status symbol or as a practical unit
of exchange. The “real value of a bitcoin” is zero, and the fact that this
isn’t obvious to everyone is, frankly, astonishing.

~~~
leoedin
But bitcoins _do_ have a use. There's at least a few million dollars a month
of value moving through Silk Road.

However, it's not in the interest of users of BTC to use a wildly unstable
currency. My prediction is that bitcoin will be replaced at some point by
another crypto currency which fixes some of its major flaws - particularly its
deflationary nature.

~~~
shawabawa3
> particularly its deflationary nature.

As far as I can tell, there's no real reason it has to stay deflationary.

At some point there could be a consensus that inflation would be good for
bitcoin and they could patch the client to start increasing the new bitcoins
per block.

tbh I don't know why it isn't inflationary, if it was you could remove/reduce
transaction fees as miners would always have an incentive

~~~
danielweber
_At some point there could be a consensus_

In theory there could.

In practice, the vast majority of the bitcoin users are speculators, and will
fight tooth-and-nail against changing away from being deflationary.

~~~
rlpb
Bitcoin users don't call the shots; they have no say whatsoever. Bitcoin
miners control the network. What matters for them is their return on mining in
BTC, and the exchange rate to their local currency to pay their capital
expenses and electricity bills.

If the miners think that they'll get more value out of the system by creating
new coins forever, they'll make the change. They have to be careful not to
destroy confidence in the system; this will be part of their value assessment.

~~~
maxerickson
Confidence in the system is more or less exactly the say of the users.

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steven777400
Having not heard of this model before, I'm very surprised how tightly the
curve fits, to the point of being sceptical (it's even got the "little" ups
and downs" it seems).

Traditionally, the idea with a bubble is that everyone (well, almost everyone)
knows it's a bubble, but no one seems to know when it will pop or how far it
will fall.

Would this same model have fit the 2008 stock market collapse? Would it have
accurately showed when and where the bottom was?

Would this same model have fit the BTC curve as well if the dataset had
started 100 or 200 days earlier or later?

Just some curiousity about a model I'm hearing of for the first time.

~~~
dragontamer
The issue with the 2008 bubble is that it was in Mortgaged Backed securities
(and related derivatives). The Stock Market crashed because when the MBSes
crashed, big banks were unable to give loans out to businesses. Without loans,
many businesses were unable to pay their employees, etc. etc.

The bubble was specifically in Credit Default Swaps, a derivative of the bond
market. The problem here is that CDSes were untracked and unregulated. No one
knew there was a bubble because there was no way to see the "fair price" of a
CDS. Companies were making deals on CDSes in their backrooms, away from
exchanges.

When all of the companies involved in CDSes failed (because people failed to
pay their subprime mortgage loans), it killed the banking industry... even
those unrelated to the bubble. When your business partner goes bankrupt,
you're also in danger. Again: there were lots of factories who couldn't get a
loan to pay their workers... because the bank they relied on died in the whole
crisis.

This leads to factory closings, lots of people losing their job, and then a
general Stock market crash.

But again, Stocks weren't the bubble in 2008. The Credit Default Swaps in the
bond market was the problem.

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joshuahedlund
Are prices only well described by log periodic power laws if market
participants don't know they are well described by log periodic power laws, or
does that make things more complicated?

~~~
jeremyjh
I don't think that a bubble feels like a bubble to the participants driving
it. I remember seeing this same phenomenon with gold prices a couple of years
ago. So many people were adamant that "this time its different" even though we
have seen gold spike and crash many dozens of times throughout history. Now
that some of these people are losing lots of money in gold maybe their views
change but it won't matter, next time will be same for the people driving it.

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arpp
Technical Analysis is the Homeopathy of the financial world, just an
"advanced" kind of scam using some basic maths...

<https://en.wikipedia.org/wiki/Random_walk_hypothesis>

<https://en.wikipedia.org/wiki/Nash_equilibrium>

<https://en.wikipedia.org/wiki/Efficient-market_hypothesis>

I though you guys were more smart than this.

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jerguismi
There has been lately some legitimate-looking companies starting options-
markets: [http://forexmagnates.com/ig-groups-launches-bitcoin-
binary-o...](http://forexmagnates.com/ig-groups-launches-bitcoin-binary-
option/)

And also a new funded startup coming:
[http://siliconangle.com/blog/2013/04/11/coinsetter-the-
newes...](http://siliconangle.com/blog/2013/04/11/coinsetter-the-newest-
bitcoin-forex-seeks-a-niche-in-the-wild-market/)

~~~
tudorizer
Yeah. Coninsetter looks promising and the beta is around the corner.

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snake_plissken
This is awesome. Hide it from the fanatics on Bitcoin talk, or post it for
them to strengthen the feed-back loops?

