Topic: Stephen Reed's Million Dollar Logistic Model - page 22. (Read 123190 times)

I don't see how this applies to Bitcoin. One of its fundamental properties is the decentralized consensus, as long as this mechanism works all nodes must be in the same state. By definition there can't be any clusters that behave differently and connectivity is not an issue as long as there is a connection to the network. Unless you are assuming that forks could exist alongside each other in completely disconnected networks, but then Bitcoin has failed as a whole.

Metcalfe's Law Explains 10x Price Growth Vs. 3.2x Transaction Quantity Growth

At least two posters, gbianchi https://bitcointalksearch.org/topic/18-mar-data-a-bitcoin-price-theory-441336
and Peter R https://bitcointalksearch.org/topic/m.5877592
have presented a theory on the relationship between Bitcoin transactions and bitcoin prices.

The consensus result is that prices are growing in proportion to the square of the transaction quantity and also in proportion to the number of addresses. Peter R uses the Blockchain.info data series that excludes the 100 most popular bitcoin addresses from the recorded transaction quantities.

Here is the outstanding chart provided by Peter R that best illustrates the application of Metcalfe's Law to bitcoin prices . . .



And here is the example device network from the Wikipedia article on Metcalfe's Law. The insight of the law is that the utility of the network, e.g. bitcoin users, is directly related to the number of reachable nodes. The number of connections is the approximately the square of the number of nodes.



Supposing that Bitcoin completely replaces the current payment infrastructure entails a transaction rate that surpasses the current quantity of bank card transactions. At a growth rate of 3.2x annually, Bitcoin daily transaction quantity will exceed 350 thousand in 8 more years. But applying Metcalfe's law predicts a bitcoin price of 58 billion USD per coin at that point - which is implausible. Therefore it is reasonable to suppose that small-world effects will disconnect the bitcoin price relationship from transaction volume, in that the future whole Bitcoin network will not be uniformly well connected but rather be clusters of well connected nodes. Here is the example graph from the Wikipedia article on small world networks . . .

I am intrigued by your analysis, but cannot position the figures on my chart. Can you provide the dates for the figures so that I can see them on my Bitstamp daily price chart? For 2010 and 2011 I can use the Mt.Gox price series.

Before understanding the logistic model, I too assumed that the rapid growth rate of bitcoin prices would decline. I accepted then, as I do now, plausible arguments that bitcoin prices could be 1 million USD or higher - provided that the Bitcoin economy eventually replaces the existing financial infrastructure.

But after fitting the logistic model to the historical bitcoin price series, it is a clear result of the model that the average exponential growth we have witnessed in the past four years will continue until we approach the half way point of speculator adoption. So I believe we will continue to see an average bitcoin growth rate of 10x annually for a few more years - given the tiny fraction of possible bitcoin purchasers that have actually purchased bitcoin.

Regarding consolidation, we can see from the price history that the consolidation periods follow bubbles, with the longest consolidation period of approximately 18 months following the greatest bubble in June 2011. The consolidation period following the April 2013 bubble in contrast was only about 5 months. Most observers here believe that the next bubble will begin in a few more months - assuming a consolidation period of say 5 to 8 months from the collapse of the November 2013 bubble.

There is little we can do about prices getting ahead of fundamentals, e.g. the steady 3.2x annual Bitcoin transaction growth, because that is human speculative nature.

Good rallies take time.
It does seem highly likely that this is a great time to buy.

Well in theory bitcoin will hit 100k in 2100 soooo....

The comparison of post-bubble crash low to pre-bubble ATH will show that:

$2 to $1.05 => 1.90
$52 to $32 => 1.63
$384 to $266 => 1.44

I don't think we have any reason to go lower, and what is more, it suggests that going lower is quite improbable. Buying right now is definitely the thing. Very little potential gains if waiting (esp. offset against the heightened risk of keeping money in an exchange), but if the price starts slowly going up, you might end up chasing the slow-moving train and lose significantly.

I think BTC will eventually be up to $100,000+ but it could take many years.
In the early years BTC went up many thousands of %.
Doesn't long-term growth require more "consolidation" first, before more "insane" Bull runs?

If we go up too fast it will be a slippery slope, Slippery Slope. 

Thanks

Yes, I share the feeling that we are near the bottom. I believe the resolution of the November 2013 bubble is remarkably similar to the resolution of the April 2013 bubble. Others have observed that twice prices dipped down briefly to around $400.

However I would not be surprised if prices fell briefly to an even lower level as $400 is about 34% of the peak at $1163. Back in the collapse of the April 2013 bubble, prices fell from a peak of $259 to $63 which was about 24% of the corresponding peak.

Sorry I cannot be more precise. The logistic model offers little in the way of short term price prediction aside from the price direction bias towards the trendline.

@SlipperySlope do you believe we are near the bottom based on your charts??

Agreed, Satoshi himself had the same viewpoint - which I share. Bitcoin most probably either takes over the world or becomes worthless.


Yes I am looking at Bitcoin adoption only. In particular I am modelling the adoption of Bitcoin purchases by the population of all those entities which are now or in the future are capable of purchasing. I ignore fiat in this analysis. Bitcoin is unlike fiat in that its value is determined by its users, not by a government. Demand for Bitcoin is related to its utility, and I believe that governments will eventually accept tax and fee payments in Bitcoin. I suppose that central banks may get the notion that Bitcoin is better than, or at least a useful alternative to gold when accumulating reserves.


I have a different view of the history of money. Governments have a history of debasing their fiat currencies. Inflation is a horrible menace to savings and rational allocation of resources. Bitcoin fixes that problem.


Agreed.


Wikipedia has an excellent article on First-mover advantage that convinces me that the concept is not a myth. Furthermore, Bitcoin was not the first digital virtual currency - rather Satoshi solved all the problems with the prior iterations to produce Bitcoin.

And I give you the last word on this day.

Holy shit, we are at the bottom

Are we in for a rough fucking ride?

Your assumption is plausible but its still speculative.   The other plausible specualtive assumption is that bitcoin would go to zero.

1.  You are looking at  bitcoin adoption only.   Not considering its competitor, the fiat.  Its maybe growing exponentially relative to bitcoin.   But has very far for market cap to catch up w fiat.  That is,  if it doesnt go bust first.   Bitcoin is fiat except the govt part.   Its fiat in the sense that it has no intrinsic value.   Except w fiat the demand is guaranteed because we are legally obligated to pay taxes w fiat.   

2.  Deflationary and decentralized currency is inferior to centrally planned currency.   See the history of money.   Banks used to be decentralized and currency was backed by gold standard.   That didn't work well so that's why we have what exists today.   Bitcoin is not an evolution its devolving.

3.  Unless it becomes legal tender its is just a commodity.   But unlike other commodities its value is pure speculation.

4.  First mover advantage is a myth in tech.   Most widely adopted tech come after 2nd or 3rd iteration.  As long as something better comes along and no cost to switch itll happen.  Currently there is a big cost to switch from dollars to bitcoin.   

All your points are valid issues but not relevant to my research. I want to understand the circumstances under which the exponential growth of bitcoin prices eventually slows down. So I assume a logistic adoption model. I assume that Bitcoin will replace fiat, and that the existing financial infrastructure will be disrupted.

My assumptions are plausible according to arguments posted earlier in this thread.

Let me address your issues . . .

1. From what I have seen so far, fundamental analysis of the Bitcoin economy supports the notion of exponential growth. The number of Bitcoin transactions, and the number of bitcoin addresses on the blockchain are both growing exponentially. I use some of the techniques of technical analysis, e.g. drawing trendlines through a historical price series in order to illustrate and understand exponential growth.

2. The assumption that Bitcoin will achieve mass adoption is plausible; namely Bitcoin is a deflationary digital virtual currency that avoids the need for a trusted intermediary thus it is much more efficient than existing banking infrastructure, and can plausibly reach vast numbers of unbanked consumers. Furthermore, Bitcoin is a platform upon which numerous value added services are being developed, e.g. Bitcoin is programmable money.

3. Government support of Bitcoin is best exemplified by the US Senate hearings this year in which powerful US politicians heard that existing laws were sufficient to deter virtual currency criminals. The chairperson stated that the US needs a balance between protecting the consumer and encouraging innovation. This point is very important. Bitcoin is innovation. I believe that the Chinese government feels the same way - but they are hamstrung by foreign exchange controls so they need to be sure that these cannot be circumvented by Bitcoin purchases transferred out of China. Bitcoin is currently not legal tender anywhere. Your issue actually could be stated as - under what circumstances would a government permit Bitcoin to become legal tender? Perhaps when a majority of that government's employees prefer to be paid in Bitcoin.

4. Economic network effects prevent an alternate coin from replacing Bitcoin - given that Bitcoin was first, is by far the largest, and is good enough. Any particular altcoin innovation can be adopted by Bitcoin if necessary. Many believe that altcoins provide a gateway into Bitcoin and thus add to its value.

5. I thought that Facebook would replace MySpace. The latter was simply not good enough.

Technical analysis is always trumped by fundamentals over the long run.

You are making a huge speculative assumption that bitcoin will achieve mass adoption.   The question is what makes it superior to fiat that institutions and govt will support it?   

Whats stopping govt from outlawing it as legal tender?   At some point govt has to take a stance like China.   Whats stopping a better crypto from replacing it?  Did anyone think Facebook would kill Myspace

You don't even know if bitcoin will exist in the future.   

I think this model is wonderful. I agree with the logic behind it.

Nobody knows the future and the market will do what it wants, but this pretty much sums up the mathematical side of the price pyramid...

I hope the market follows the long term trends!

Did you read the first 4 posts in this thread? I don't think so. Maybe you should, before you start commenting. This is not Apophenia.

In this case i remember words like: "there won't be the need for more than 100 computers in the entire world"
"internet won't spread"

So according to your chart this next bubble would put us over 10 k by the end of the year !! That's seems hard to accept as even close to possible !! But who would of thought bitcoin would go from the 100"s last October to 1200$ in December . So that same increase this year would put us close to 10k by end of December this year !! Great logistic model makes one think twice about spending there bitcoin Im thinking you might of been more close putting the top of your model in the 500k range but its hard to tell with bitcoin and how much adoption we are seeing in the market ....