Topic: Future price of bitcoin - logarithmic chart - page 2. (Read 29204 times)

Yes, but I guess, that a linear regression, which includes the very first period of trading is not only simplistic, but stupid as well.


I think, it can be an accurate method, but not if you include periods which can't be relevant for the future, and such a period is the very beginning of the game, say the first 1-2 years of trading.
Many other indicators support the view, that the increase is flattening out with time passing:

http://blockchain.info/charts/blocks-size?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=1&address=


I have shown that the trend is flattening out within the shown period.


Maybe, but I think it is not more silly than to include the very first periods of trading into a prediction based on linear regression.

Thank you for hearing me ..
http://www.youtube.com/watch?v=mj_xKA5C2vU

Good point DeathAndTaxes.
Just like mining real gold we have come far since the sieve and we're now using deep mining rigs costing millions.
More expensive mining rigs will bring the price of a bitcoin to new heights just like gold.
If a bar of 12,5 kg gold can be around €400000,- why can't 12,5 Bitcoin be that

The bitcoin will hopefully reflect the price of mining hardware and effort needed to mine deeper.

I can understand the plateau because the amount of miners will decline and mining companies will come into existence to find bitcoins.
This will probably make the trend more based on the technology and less volatile between technology shifts. Mining will slow down considerably.

Dedicated mining companies / mining clouds are popping up so we are at the beginning of the "third phase" in my view on bitcoin mining.
We still have a few years of ASIC development ahead so the price will probably keep increasing for now.

My view on phases:
First is solo miners - no adoption by anybody, no real value
Second is mining pools - adoption limited to a few companies, exchanges pop up for trading, value picking up rapidly
Third is mining corporations / mining clouds - adoption starting to pick up by quite a few companies, value picking up even more
But then???
Forth could be
 - the death of bitcoin by quantum computers
 - worldwide adoption
 - replacement of bitcoin by bitcoin_v2 to solve some oncomming problems.


That said... If I can still get 10x to 100x my money it will be a good profit

Now this is interesting. Another quote from the article: "Bitcoins being exchanged into or out of RMB now accounts for 21% of all volumes (versus 65% versus USD and 6% versus Euro)." . Bitcoin is the second-most exchanged currency in China behind the USD. Also: "I think we are in the take-off stage." And: "I bet you never thought you’d see this in a macro publication. But I’m serious. This just might work. Trade Recommendation: Buy Bitcoin"

Wow, just WOW. Mainstream media (and be it only the ones addressing traders so far) is picking up and recommending bitcoin!

Drawing a line through $0.06 and $2 is simplistic.  It assumes that both $0.06 and $2 were properly priced.  It also fails to consider that a minuscule amount of Bitcoins traded at both of those prices and also fails to consider the effect of all the other multitude of data points between them.

What if the $0.06 tick was a single scared trader who sold off a relatively small number of coins into a thinly traded market.  Excluding this trader maybe the low of the day would have been 2x as high.
What if the $2 tick was saved from a lower tape by MtGox lag?   In a perfect market with perfect access maybe it would have traded down to a buck.

Drawing another line through $0.12 and $1 on those days may look completely different.  That is the problem with just picking a few data points (often the peaks and lows by "technical" traders).  Those points have some value but they aren't "the whole story" and a few small events on those days (now given heightened importance) can significantly change the line drawn.

Linear regression attempts to discount the effect of those extremes by:
a) considering all data points not just two humanly chosen points which satisfy a conclusion you already had before drawing the line
b) consider the relative DISTANCE of each point from the overall trend.  The ticks the furthest from their peers (outliers) have the least influence on the line.

Is linear regression perfect? No.
Does the chart in the OP predict the future? No (it simply says IF and ONLY IF Bitcoin continues the historical trend it will follow a random walk around this line).
Is it better than picking two points at random and drawing a line? Yes.

IMHO I think Bitcoin will hit a plateua at some point in the future simply because the infrastructure (hardware wallets, deterministic wallets, node efficiency, legal issues, service providers) haven't kept up with the growth.  This will create a "bottleneck" of sorts on higher adoption and price but there is money to be made solving those problems and they will be solved in time.   Obviously (if I am right) this is something that no statistical model could see or even claim to see.  Growth would follow a trend line and then break the trend (significantly) for some period of time.

Still for the sake of argument lets pretend you "randomly picked and drawn line using two data points" was a perfect predictor of price on a long term scale.  You still really haven't shown that the trend is unsustainable.  Bitcoin is risky and there have been a lot of risk "hits" in the last two year (FinCEN, MtGox getting seized, SR closed, various exchange hacks/thefts, bank freezes by various Bitcoin related companies, legal notices by the state, etc).  It is entirely possible that risk is discounting the actual price from the trend line (remember in that early trend prior to the $32 spike Bitcoin was pretty much invisible to law enforcement, governments, and traditional finance).  So it is certainly plausible in the short term the increased risk would discount Bitcoin from the trend.  You will notice that even on your "chart" the price is following the trend it is simply discounted.  As Bitcoin gets bigger much of that risk will be reduced and you could see the price rise up to meet the trend line some years in the future.  Simply put drawing a line across three years of data and saying it is broken long term is .... well silly.

No, I think I know what it means.


But not down enough:

https://bitcointalksearch.org/topic/m.3561426

Nevermind. I see you still didn't educate yourself on what linear regression means.

a segment of the data can  contain such an increase but that  doesn't mean that the extrapolation of the line of best fit ever includes such a rapid growth again. In fact, the crash post 32 pulled down that line a lot by all chance.

There are good arguments to be made against simple linear regression as a predictor of future price, but yours are not among them.

But what I know from past experience is that initial stage investments like this are always volatile. But if they take hold then they can go up further than you could ever, ever, ever, ever imagine.
Microsoft back in 1986 to 1987 rose 400% then corrected 30% – twice – before rising again. Microsoft eventually topped out after a 44,000% rally from that point. Forty-four THOUSAND.

Source http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/11/Bitcoin.pdf

The Lables in the Chart wich say "bubble" are in Hindsight
Just overbought scenario s.  Where after price just returned  to its mean
Wich is rising ...  First time a hinsight Analysis isnt total Crap

The Trend is up !

Unsustainable was not only the trend line to the peak, but the trend from 0.06 to USD 2 as well:

$0.10 to $32 (as an unsustainable peak which crashed back to ~$2) isn't a thousand fold increase.

edited: You are right, 500-fold only, 0.06 to 32

October 10 - June 11; which is included in the linear regression, which will never happen again.

Where do you see a "thousandfold price increase within some months" anywhere in the above chart? The analysis basically said: 10-fold increase each year. In reality, we're above the price predicted by that line right now.

And why shouldn't such an increase continue, for now? Sure, there will be *some point* in the future when this growth needs to slow down, but while each increase by a factor of 10 requires more capital entering the market (to go from 10 to 100 requires a higher increase of absolute market cap than an increase from 1 to 10), this could well be countered by increasing benefits from network effects, as a result of the increased popularity (and perceived security) of Bitcoin.

Why not?  We have just scratched the surface of what Bitcoin can be.  We are still on the ground floor.  We have not even begun to see what will happen when Wall Street gets involved with the Winkelvii trust.  I have heard people say that anything under $1000 is cheap.  I am really starting to believe that.  Call me crazy but in a year I think that this will be proven.

For me, it is useless in this case, because a thousandfold price increase within some months is possible exclusively in the very beginning. Or does somebody really believe that this could be repeated later in the game?

True. You'll note I said that I'm not rejecting linear regression at all. Just that I want everyone to be clear about the assumptions made.

It's arguably the best starting assumption, though. At least a straight line that is a best fit for the data is the simplest starting assumption. Occam's razor suggests not making it more complicated without particular reason, and it seems to me there's enough shooting in the dark as is that there's a very high bar on adding more complexity to the trendline.

Flashback time! This entire discussion reminds me so much of an exchange I had several months ago on the Wall Observer thread with a biological statistician guy (whose name I forgot, but he had a caricature of Darwin as his avatar I think), who didn't seem to be clear about the assumptions he made in performing his price analysis.

Anyway, I think this discussion suffers from a lack of mutual understanding. Those who know how regression works reject Zarathustra's claim that one might just as well draw random lines on the chart. And they're right of course. Zarathustra on the other hand (correct me if I'm wrong) probably feels the regression analysis is somewhat arbitrary as well. And he's right as well.

Why?

Because you make (at least) the following two assumptions:

1) It is possible to extrapolate from historical data. That's kind of a big assumption, but on the other hand: what else would you do? The only thing we *can* work with is historical data.

2) If you apply linear regression analysis to the entire, unpartioned historical data on a log chart, you assume there is exactly one linear price function (which you then attempt to approximate).

And the latter assumption is much more contentious, in my opinion.

Please note that I'm not saying that linear regression in general is useless to predict bitcoin price, just that it is important to be clear about the assumptions you make. So if you post a chart with a single big line like the one greaterninja posted, then the single function assumption needs to be addressed, because I'm sure a lot of people would be more critical if they knew this assumption is necessary to get this result.

1) I'm completely free to paint what I want.
2) I think, linear regression doesn't make sense even if we exclude the first Bubble.

Then, instead of pure guessing, just start a logarithmic regression line after June 11 and post that. Just drawing an eyeballed line IS simply less legitimate.

Yes, pure guessing based on the assumption that the 8 month-period of October 10 to June 11, in which the price went up thousandfold, will never be repeated again.

Right, but if you change the line by selecting a subset of the data, you should be able to describe your methodology and a reason why it should be accepted as a model.  I have a feeling your methodology was "this looks good".