Just putting the original message here. I will now put the latest on the front page.
Tl;dr. Here are the price predictions for Bitstamp BTC/USD.
n.fut date p_5 p_50 p_95
1 0 2014-05-08 NA 446 NA
2 1 2014-05-09 403 448 499
3 7 2014-05-15 351 466 620
4 30 2014-06-07 300 542 982
5 91 2014-08-07 282 810 2,330
6 365 2015-05-08 489 4,890 48,800
7 731 2016-05-08 1,500 54,000 1,940,000
p_50 is the median prediction, p_5 is the "pessimistic" prediction, and p_95 is the "optimistic" prediction. In a year, we could reasonably be at 10x where we are right now. Or, we could be still at where we are now. Read on for a discussion.
The spreadsheet extrapolation. Many people plot log price versus time, find the best fitting line, and extrapolate it. This is what they get:
Estimate Std. Error t value Pr(>|t|)
(Intercept) -1.817e+00 4.592e-02 -39.57 <2e-16 ***
day 6.062e-03 5.735e-05 105.70 <2e-16 ***
R-squared: 0.8898
Look at this -- R2 = 90%! We are making 0.6% per day. No problem.
What others point out in response is that the trend cannot go on forever. While the long-term curve could in fact be S-shaped, we could still be in the early part of it. The trend does appear to be increasing (log) linearly. So, in my view, that's not the real issue.
The real issue is that OLS assumes that the residuals are independent of each other, which, in a time series, is clearly and completely false. And we should talk about confidence intervals as well, not just a point estimate.
A better model. Here is a very simple / basic model, the assumptions for which are actually not violated.
diff log price ~ Normal(mu, sigma)
The difference in the log price, which is approximately the daily percent return, has a Normal distribution with mean mu and standard deviation sigma.
Using all available data, we have
n.data from to mu sigma cv
1 1,380 2010-07-17 2014-05-08 0.00656 0.0652 9.93
So yes, there has actually been a growth of 0.66% per day. But also look at the standard deviation. CV (the ratio of sigma / mu) is around 10 -- there is a lot of variation.
More estimates. Are these parameters changing with time? Is mu perhaps drifting? Here are the historical values:
n.data from to mu sigma cv
1 183 2010-07-17 2011-01-16 0.01120 0.0810 7.25
2 365 2010-07-17 2011-07-23 0.01530 0.0834 5.44
3 548 2010-07-17 2012-01-22 0.00881 0.0788 8.95
4 731 2010-07-17 2012-07-23 0.00701 0.0697 9.95
5 913 2010-07-17 2013-01-21 0.00634 0.0638 10.10
6 1,100 2010-07-17 2013-07-23 0.00688 0.0675 9.81
7 1,280 2010-07-17 2014-01-21 0.00759 0.0664 8.75
8 1,380 2010-07-17 2014-05-08 0.00656 0.0652 9.93
After the initial explosion (1.5% per day!), mu has been relatively stable - though it is not in its lower range. Sigma / volatility has declined too. Anyone have any other insights on this?
But maybe the market is changing, which would mean that we should ignore old data. Here are estimates using only a year's worth of data.
n.data from to mu sigma cv
1 289 2010-07-17 2011-05-02 0.01440 0.0777 5.40
2 365 2010-11-01 2011-11-07 0.00754 0.0820 10.90
3 365 2011-05-03 2012-05-08 0.00120 0.0689 57.30
4 365 2011-11-07 2012-11-06 0.00354 0.0374 10.60
5 365 2012-05-08 2013-05-08 0.00851 0.0608 7.15
6 365 2012-11-06 2013-11-06 0.00866 0.0618 7.14
7 365 2013-05-08 2014-05-08 0.00390 0.0527 13.50
In the past year, mu has been really low. CV is the second highest that it's ever been. -- But mu can't go any lower for now, right? Cuz we've bottomed out? Anyone has any thoughts on this table?
Predictions. Predictions using all of the available data are at the top of the post. A year from now, the median prediction is $4,890 per coin. Meaning we could be at 10x of where we are. The pessimistic prediction is $489. I don't see how we just sit here for a year, but I guess it's possible. And the "to the moon" prediction? In 2 years, we could be at $$$ 2 million dollars $$$ per coin. :-) Ladies and gentlemen, hold on to your coinz. :-)
What if the market has changed and we should be ignoring the early days? Interestingly enough, the parameters in the past 2 years are almost the same as the parameters that use all of the data.
n.data from to mu sigma cv
1 731 2012-05-07 2014-05-08 0.00612 0.0569 9.3
And so the prediction using the past 2 years of data is very similar to the prediction that uses all the data.
n.fut date p_5 p_50 p_95
1 0 2014-05-08 NA 446 NA
2 1 2014-05-09 408 448 492
3 7 2014-05-15 363 465 596
4 30 2014-06-07 317 535 903
5 91 2014-08-07 302 778 2,000
6 365 2015-05-08 466 4,160 37,100
7 731 2016-05-08 1,090 39,100 1,400,000
In a year, we are still at either 10x or, if things go bad, at the same price as now. In 2 years, "to the moon" is $1.4 mil instead of $1.9 mil.
Break-even point. If you buy today and thing go bad, how long will you have to hold to get your fiat back? Here is a prediction using all of the data:
n.fut date p_5 p_50 p_95
1 331 2015-04-04 446 3,910 34,300
331 days -- less than a year. So keep buying. :-) Buy coins, come back a year later, and you will very likely have made a profit.
Thoughts, comments, suggestions, criticisms are very much appreciated.