
Ask HN: Why is Bitcoin crashing massively right now? - throwaway713
Huge volume of trading activity and a crash from $9.5k USD to $8.5k USD in the past 30 minutes: https:&#x2F;&#x2F;www.coindesk.com&#x2F;price&#x2F;bitcoin
======
spats1990
""The halving is coming"" but markets are anti-inductive.
[https://www.lesswrong.com/posts/h24JGbmweNpWZfBkM/markets-
ar...](https://www.lesswrong.com/posts/h24JGbmweNpWZfBkM/markets-are-anti-
inductive)

(I think. I can't actually say I fully understand this piece, but it seems to
make a bit more sense with each reread.)

~~~
treyfitty
I like this article and hate it at the same time. It posits a proposition
quite simply, but there's enough going over my head that I can't truly grasp
what the author is saying. For example:

"Let's say you see me flipping a coin. It is not necessarily a fair coin. It's
a biased coin, and you don't know the bias. I flip the coin nine times, and
the coin comes up "heads" each time. I flip the coin a tenth time. What is the
probability that it comes up heads?

If you answered "ten-elevenths, by Laplace's Rule of Succession", you are a
fine scientist in ordinary environments, but you will lose money in finance."

Why is it 10/11? If we are to take the probability by induction (as the author
points out shouldn't be done), it would be 9/9, no? For a non-biased coin
case, taking the limit of [h/(n)] as n -> inf and where h = 0.5n would be 50%.
If we have observed 9 heads in 9 flips, doesn't induction dictate the we
should expect the next flip to be heads? I'm not saying I'm right... but I'd
like to correct my gap in logic.

~~~
kerkeslager
Well, did you look up Laplace's Rule of Succession?

[https://en.wikipedia.org/wiki/Rule_of_succession](https://en.wikipedia.org/wiki/Rule_of_succession)

I'll try my hand at explaining:

Let's say there is a coin you have never seen flipped. You know it might be an
unfair coin, but you don't know which side it favors. All you know is that
there are two possibilities: heads or tails. Intuitively, we know at this
point that the best information we have is gives us a 1 in 2 chance of
flipping heads.

Laplace represents this intuition by representing what we know without having
ever flipped the coin as _pseudexperiments_. In other words, we have two
implied experiments, one in which heads was flipped, and one in which tails
was flipped.

You flip the coin once, and get heads. But it would be extremely premature to
assume at this point that you have a coin with a probability 1 of getting
heads just because that's the result you've seen. Even a completely fair coin
might have this result. Knowing that a fair coin might have this result, you
can still include your pseudo experiments, and treat it as if we have 3
experiments: 1 pseudo experiment with result heads, 1 pseudo experiment with
result tails, and 1 real experiment with result heads. So we now say the
chances of flipping heads again are 2 in 3.

After 2 heads, we have HTHH, so we say 3 in 4.

After 3 heads, we have HTHHH, so we way, 4 in 5.

After 5 heads we have HTHHHHH, so we say 6 in 7.

And so on until 9 heads we say 10 in 11.

> Why is it 10/11? If we are to take the probability by induction (as the
> author points out shouldn't be done), it would be 9/9, no?

No. With a completely fair coin, there's a 1 in 512 chance that you would get
heads 9 times in a row, so you can't completely discount that possibility.

The derivation proving that Laplace's method is equivalent to the sum of all
the probabilities of having all the possible coins and flipping 9 heads with
them is complicated, and I don't think I can do a better job of explaining
that than the Wikipedia article did.

~~~
joshuamorton
Specifically, Laplace's method assumes the uniform prior. If you do the same
thing and apply the Beta Distribution to this problem, you can answer the
question "what is the probability that the coin lands on heads more than X% of
the time. The answer, assuming a uniform prior and 9 heads, is that there's a
65% chance, for example, that the coin is biased more than 90% in favor of
heads.

If on the other hand you choose a different prior, for example "the coin may
have two heads, and it's difficult to manufacture a biased coin with two
different faces that still favors one side more than 90% of the time", then
you might instead reach the conclusion that there's a 65% chance that the coin
has two heads. But we don't usually deal with weird priors like that in intro
stats.

If, as GP suggests, you _know_ that the coin is somehow biased, you should
seed your beta distribution with a non-uniform prior. That is Beta(.5, .5)[0]
or something instead of Beta(1, 1). Then you'd be 84% sure, instead of 65%
sure that the coin was biased at least 90% in favor of heads.

[0]:
[https://homepage.divms.uiowa.edu/~mbognar/applets/beta.html](https://homepage.divms.uiowa.edu/~mbognar/applets/beta.html)
Play around with this, in the Beta distribution, a=success, b=failures, X is
the mean of the underlying dataset, and P(X>x) is the propbality that the mean
of the underlying dataset is greater than the provided value. Look at

\- Beta(1,1): the uniform prior

\- Beta(10, 1): Laplace's method

\- Beta(.5, .5): A prior where you believe the coin is weighted, but aren't
sure how much.

\- Beta(.1, .1): A prior where you're very confident the coin is weighted, but
unsure in which direction

\- Beta(9.5, .5): The coin after 9 flips

\- Beta(9.1, .1): The coin after 9 flips when you're really confident it's
weighted

\- Beta(8.1, 1.1): The coin after 9 flips when you're really confident it's
weighted, but both sides aren't in fact the same.

Those will give you some intuition about the distribution itself.

------
decentralised
You're new to this :-)

Look all cryptos are extremely volatile because the real market liquidity is
an order of magnitude less than most people think it is, and the way automated
market makers work force all exchanges to keep their prices "in sync" to avoid
arbitrage like we had in the early days when it was possible to buy for 50$ in
one exchange and sell for 100$ in another..

On the plus side, atm BTC is up ~8% in the last year and about ~22% since the
beginning of the month.

Source: me a blockchain dev, former CTO of a crypto exchange that raised 30M
in an ICO.

~~~
tuesday20
A bit off topic - is it worth learning blockchain tech? Is it a viable career?
If yes, where should be start - btc, eth..? Or something else?

~~~
rini17
It is certainly useful to learn enough to dispel the bull "X will be better
with blockchain".

~~~
mettamage
I second this. Blockchain is still an amazing technology though. I think the
general concept is even way cooler (blockchain is, I think, an implementation
detail).

The concept is: decentralized databases

When should you have that? Well, one example: whenever you need a database,
and a centralized database is politically or socially impossible.

Fun fact: bitcoin is a better currency than any currency that is undergoing
hyperinflation right now. Some of those places also can't have centralized
databases.

------
gitgud
Correct me if I'm wrong but there's many reasons:

\- It's an unregulated _market_ , so there's nothing preventing wealthy actors
from buying up tonnes and artificially increasing the price, e.g: " _pump n
dump_ ".

\- It's inherently speculative and has no _real_ use besides investing and
unregulated money exchange.

\- It's a global market, people from all over the world have access to the
market with little overhead, making it volatile.

~~~
mettamage
> It's inherently speculative and has no real use besides investing and
> unregulated money exchange.

How about sending cash? You can do that with a bank account. But what if you
can't? 1.7 billion people are unbanked and some of them do have access to
computers.

There are situations where cryptocurrencies are currently the only solution.
Sure, not for you, or for me. But definitely for a large group in the world
that we don't know much about, because we don't live their lives.

Edit: the more I reread my reply the more it fits "unregulated money
exchange". But I'd like to argue that such a thing is a _real_ use case. And
by trivializing it you're not allowing yourself to understand it with minimal
bias.

~~~
notahacker
> But what if you can't? 1.7 billion people are unbanked and some of them do
> have access to computers.

And absolutely none of them are or should be storing their limited assets into
something they can't change into spendable cash in the local economy without
access to a bank account [even without taking into account volatility etc].
Regulated money transfers already serve this population much better for
sending money long distance because they get cash at the other end. No matter
how hard newly-minted foreign millionaires try to enlist them in the dump
phase of their money-printing scheme, people in the developing world don't
have a need for computer based tokens with volatile notional value which are
not only not accepted by people in their local economy but also completely
unintelligible to them

The real demand for unregulated money exchange is of course unlawful
transactions, and serious crime like extortion undoubtedly represents several
orders of magnitude more volume in the BTC economy than serving the unbanked.

~~~
mettamage
Disclaimer: not a crypto millionaire (my comment history shows some plausible
evidence of that).

Thanks for giving your opinion. Well, we clearly strongly disagree. The only
issue I see in my argument is that I don't know well enough to what extent the
unbanked can exchange bitcoin in their local economy for goods/services or
their own currency. One can say they can't, but the real answer is: they
probably can't, but I don't know and maybe they could. If they couldn't then
my position is not holdable. If they can, then I'd say I strongly disagree.

In any case, you said the following.

> demand for unregulated money exchange is of course unlawful transactions,
> and serious crime like extortion undoubtedly represents several orders of
> magnitude more volume in the BTC economy

The way I made this quote is slightly out of context, but with this I agree
(i.e. I deleted "the real" and "than serving the unbanked").

But what about playfulness? This is a completely different inquiry than my
comment above that (i.e. the western world). I wonder how big that demand is.
I'd venture to guess the following: at least 21 million people are willing to
play with bitcoin by now for at least $1. If this number is 210 million
people, then this lowerbound goes to $10 per bitcoin. Yep, handwavy, I know.
I'm assuming by the way that in such a secnario everyone would then play
around with 0.1 bitcoin.

The reason those values are sustainable is because $1 is within everyone's
budget of being playful.

I'm simply wondering what you think as your views are very different from
mine.

~~~
notahacker
I think the switch from BTC's demand being supported by the needs of 1.7
billion people to a small minority to the 'playfulness' of a minority of the
Western world pretty much underlines the difference between the fantasy and
the reality.

WRT crypto appealing to some people's playfulness, I entirely agree with you:
it's well established fact that a non-trivial number of people in the Western
world enjoy gambling with Bitcoin or cryptokitties, and some of them have deep
reserves of cash and algorithms to pump more in when they see a trend they
like. But the thing about 'playfulness' is it doesn't make a stable store of
value or useful medium of exchange: for that you need the amount of new money
flooding in to equal the amount of money flowing out. And people move on to
playing with new things.

------
Analemma_
Everyone here is just making random guesses. The truth is that Bitcoin is an
asset backed by nothing but speculation, so wild price swings with no legible
cause are completely normal.

~~~
gas9S9zw3P9c
Exactly. This thread describes perfectly how humans love making up stories in
their own mind to get the illusion they "understand" something. There's
nothing to understand here, and no single simple reason, except that a large
volume of BTC was sold.

------
unnouinceput
"...crash from $9.5k USD to $8.5k USD in the past 30 minutes..."

what's this? quality bait? BTC was up and down all the time, this is normal.
Say OP, do you have bitcoins? Because it seems to me you're trying to stir
something

~~~
adamhearn
This large of a move in the BTC market recently is much more uncommon.

~~~
wolco
It sounds like a big holder moving out and probably into the stock market
which should be hot soon now that people are going back.

------
Kevin578
Bitcoin recently pumped from ~$7k to near $10k in a few days. Of course, after
a quick pump comes what?

------
treyfitty
It looks eerily similar to what happened to the stock ticker MVIS. 2 days
before a major event/earnings call (though, the earnings call was pure
speculation), an extremely large single transaction took place that elicited
stop losses for those with limits placed, exacerbating the fall.

Redditors like to think this is a manipulation tactic to incite a plummet in
price to buy in at a much cheaper price and ride a slow, gradual wave up
before the actual event happens.

[https://twitter.com/whale_alert/status/1259258437831188482?s...](https://twitter.com/whale_alert/status/1259258437831188482?s=20)

------
throwaway743
I'm assuming you bought high?

Learn to read trading indicators. You'd see that it was massively over bought
and bound for a bit of a correction.

Also, if you think this is bad... you haven't been in the shit yet/must be new
to this market.

~~~
mekster
What is the indicator that made you think it was massively over bought at
$9.5k?

~~~
throwaway743
RSI(28) started peaking on the daily chart.

Weekly and monthly charts are showing room to move either way. Stochastic RSI
is at mid range on weekly, moving upwards, and has yet to cross over. Same for
monthly, except it's moving downwards.

Daily was pretty oversold, but longer term looks to be brighter.

------
shiado
Somebody using the leverage exchanges (>100x margin exchanges) are liquidating
the leveraged longs over the weekend after a several week long run up where
people built large long positions. After a 10k close on Friday expect it to
gap up to 10k Sunday night forming a reverse BART and making the players
behind this move much wealthier.

~~~
marktangotango
Which exchanges are these? Are they generally btc or ?

------
thexa4
[https://www.teletrader.com/bitcoin-drops-15-trades-close-
to-...](https://www.teletrader.com/bitcoin-drops-15-trades-close-
to-8-000/news/details/52111275?internal=1)

This website suggests it's due to bitcoin halving the block reward soon.

~~~
kerkeslager
1\. That link does not suggest a causal link between the halving and the drop
in price.

2\. If it did suggest that, it would directly oppose the law of supply and
demand--a reduction in the rate of increase in supply should increase price,
not lower it.

------
s1t5
Only midlly related - for the past couple of years (since the crash of early
2018) following the crypto markets has been incredibly boring because of how
highly correlated all the coins have been. Just have a look at coinmarketcap -
the line charts are nearly identical.

------
mirimir
What's interesting is that it got back to ~$10K so fast after the crash to
~$5K in mid March.

~~~
WheelsAtLarge
If you have enough BTC you can move the market. I bet there a few teams out
there coordinating buy and sell points.

------
koalala
volatility always increases near halving events.

