Hey folks, how’s it hanging?
As price has been moving sideways for the past few months, I decided to do an exercise and wonder what variables play a massive role in price changes. Not only that but make a random prediction of Bitcoin’s price at the end of 2018.
My strategy is simple: to analyze the three vectors I consider the most important and see if there is a convergence towards the same point.
First, we choose random coordinates in time, so that our analysis actually works.
This is, whenever you bought Bitcoin that would be your starting point.
If you haven’t, what the hell are you waiting for?
As with any game, there are always two possibilities; a binary sequence for happiness. You either win or lose.
In other terms:
Price goes up or,Price goes down.
–this article shouldn’t be taken as financial advisement as it represents my personal opinion and views. I have savings invested in cryptocurrency so take whatever I write with a grain of salt. Do not invest what you cannot afford to lose and always read as much as possible about a project before investing. Never forget: with great power, comes great responsibility. Being your own bank means you’re always responsible for your own money—
First things first: just because we’re about to go down a mathematical rabbit whole, where numbers seem to give a false sense of certainty, do not get tempted to think you are absolutely sure.
Past performance doesn’t indicate future performance. Never, ever, ever.
TA is a great tool to actually improve your understanding of how markets behave, but it cannot, by itself, give you any kind of assurances. This is, you might believe you have enough understanding of price movements to actually predict its behavior, but at the same time so that a few win, many must lose.
The more you trade the less likely your chances of survival are.
Don’t get me wrong, I’m all for trading; if you’re good at it, patient enough and eager to spend hours around manuals and books, then you might have a chance.
Truth is, most traders lose. That’s just how things go.
If you still want in, there are some tools that might help in your quest for glory.
The Monte Carlo simulation is one. Basically, we assume that the future behaviour of the price of an asset will be similar to its past behaviour, and we generate a lot of random versions of that future, called random walks, similar to the past. That’s done taking random samples from the past and stacking them together to build each one of those random walks.
What immediately catches my eye is that the number of simulations landing on the area below 10k is much lower than the ones landing above.
What does it tell us?
If you believe in simulations, statistics and that price history matters, then it means you can expect the price of Bitcoin to rise, at least, above 10k.
More, however, what if you consider what should be the likely normal distribution for price?
Think like this: how many occurrences happen for each price level?
By applying some distribution techniques we confirm our previous suspicions: the likelihood of Bitcoin’s price to increase past 10k is much higher than the opposite.
What the above also shows is the most probable price for Bitcoin on the 31st of December 2018 is…
That’s right, lads. According to this one statistical analysis we’re going to the moon!
Jokes aside, I honestly think it’s a great tool to understand future behaviour, although I also agree past performance doesn’t influence future performance. But because Bitcoin is cyclical, open, transparent and very easy to manipulate, it becomes a safe haven for speculation.
And what drives price speculation?
A key vertical for making successful predictions is understanding market sentiment. Not only that, but you need to have a grasp on different markets, as money moves around a lot.
Before we go too deep into trend analysis, do you care more about macro-trends or about the reason behind events?
The supply of money tells us an interesting story. See what happened after 2008. To keep the engine running, there was a unanimous decision to just print more money, sell it cheaper and hope that would give the economy a nice boost.
Did it work?
If you look at the overall goal, yes; but what if we look closely, was there any actual value created?
There seems to be a huge fallacy with the above Keynesian logic. Economic activity by itself doesn’t tell you anything. People could be trading the same Bitcoin back and forth for a dollar a billion times and that would count in the economic activity statistics as a billion dollars of activity. The aggregate numbers simply don’t mean very much because they have at best a very weak correlation with the actual value added.
Just because there’s more money, it doesn’t mean that money is going into something productive. More, however, you expect the more money is printed today, the less value it will hold…