A few thoughts - Tuesday, May 27, 2014
Posted: Tue May 27, 2014 2:55 pm
A few thoughts:
1.
When I got up this morning, the first thing I noticed was that the price, at $560, was much higher than when I left, and seems to be rising right on cue with what /u/moral_agent would predict. This increase of $50 over 3 days is a little higher than I thought it would be. Remember, if there is any deviation from other bubbles, it will be that this bubble occurs sooner.
2.
The second thing I noticed when I woke up was this "Willy report" that was released over the weekend. I read the report, and was floored by how poor an example of journalism that report is. The report's author almost presents himself as God, making it sound as if he is doing some sort of service to the community by withholding this "vital information" for months until now.
Information about Mt Gox is important. People with integrity don't hold back information of importance from people so that they can take advantage of price spikes and dips. They release their findings as soon as they are ready so that people can make informed decisions about their investments. If his report is true (and I believe it is not), then he has himself performed manipulation just like Mt Gox did. You don't discover information like that and just wait two months to release it.
Furthermore, the report is heavily biased. None of the alternate, less nefarious, explanations are discussed in any detail.
3.
Let's discuss the contents of that report. The report is flawed for several major reasons, but the main one is that he simply draws more conclusions than the data warrants. This is the same mistake that was made in the Newsweek article three months ago. You can't take two databases, which differ by only a few rows, and claim that some question marks are positive proof that a massive criminal conspiracy has occurred. There are many posts that offer plausible alternatives that are equally likely.
Plus, why aren't people considering the source of this data? The databases that are being claimed as sources for this sensational piece were "hacked" from Mt Gox (in other words, obtained illegally.) In fact, one of these databases was distributed in a compressed archive alongside a program called TibanneBackOffice.exe. When run, it steals bitcoins from the user's computer.
4.
Then there were people like /u/zivilars666, who are quick to exclaim "RIP in peace Mr. Bubble Cycle," despite that there has been no evidence whatsoever that the price has departed from the bubble cycle. I looked back at the post history on Sunday and it looked like a typical bad news day in bitcoins - ("bitcoins are dead," "there will be no bubbles ever again," etc.) All you have to do is replace "Mt Gox" with "China" and you can replicate the sentiment from earlier in the year.
5.
Correlation does not imply causation. Many people here seem to get confused as to which direction the causality lies in many of the events around here.
For example, married people are proven to be happier than single people. However, an examination of the data shows that people who later get married were happier to begin with. Marriage doesn't cause happiness; people who are happy are more likely to meet other people because people like to be around happy people. This is common sense, but many people never look at it that way.
I have always been, and continue to be, of the opinion that the primary driver of all bitcoin events is the price. The price is responsible for software development, mining (or lack thereof), and publicity. Developers do not see higher prices as a result of product launches, miners do not set the price, and publicity begins to occur after the price is rising.
People continue to look in the wrong direction when they examine bitcoins prices. They are looking for "triggers" and causes. Always make an effort to turn the question around and ask yourself whether the direction of causality is reversed for any given question in bitcoins.
6.
Given #5, these bots could not have driven the price on the opposite side of the bubble cycle. If the "Willy" bot were buying up lots of bitcoins during the downtrend of a cycle, it could not have reversed the cycle. When it was buying on the uptrend, it did not cause the cycle to go any higher than it would have anyway. Instead, what happened is that "Willy" acquired coins for whoever or whatever purpose, and those bitcoins were not purchased by other people who wanted to purchase them because the price was too high.
Every person has a threshold above which they will not buy a product. Given enough people, there will be one person at each possible price point. If I'm selling cars, then there may be 50,000 people who will buy the car at $20,012, and 49,999 people who will buy it at $20,013, and 49,997 people at $20,014, and so on. If we only have 20,000 cars, then the price the cars sell at will be dictated (mostly) by the threshold above which the 20,001th person is no longer able to buy.
All people have a limited amount of money. If they can't buy this car, they will buy another brand. In bitcoins, they will buy another asset or they will buy fewer bitcoins. The selling price of the items only rises if there are no other cars (or assets) on the market for people to buy. Therefore, I don't agree with the idea that the entire bubble was caused by this one bot - this not only is unsupported by the actual data, but it doesn't work because there are inferior goods available for the demand to pass to (like stocks).
7.
One type of inferior good that is available for the people who were not willing to buy bitcoins at inflated prices, if the Willy bot was fake, is altcoins. Altcoins are easy to change for bitcoins, exhibit many of the same properties, and are much cheaper. Altcoins rose in value to astronomical highs just when Willy was at its most active. For example, litecoins rose to 1/20 of a bitcoin.
8.
This report is an example of why people who daytrade are unlikely to make money. The idea that bitcoins are highly manipulated is nothing new. Most likely, the reason why that report had zero impact on the price of bitcoins is because the people who perform the manipulation already knew about that.
While the report makes it sound as if this incident were solely responsible for price swings, there are probably bigger price fixing incidents that nobody knows about right now, in both directions.
Other
1.
When I got up this morning, the first thing I noticed was that the price, at $560, was much higher than when I left, and seems to be rising right on cue with what /u/moral_agent would predict. This increase of $50 over 3 days is a little higher than I thought it would be. Remember, if there is any deviation from other bubbles, it will be that this bubble occurs sooner.
2.
The second thing I noticed when I woke up was this "Willy report" that was released over the weekend. I read the report, and was floored by how poor an example of journalism that report is. The report's author almost presents himself as God, making it sound as if he is doing some sort of service to the community by withholding this "vital information" for months until now.
Information about Mt Gox is important. People with integrity don't hold back information of importance from people so that they can take advantage of price spikes and dips. They release their findings as soon as they are ready so that people can make informed decisions about their investments. If his report is true (and I believe it is not), then he has himself performed manipulation just like Mt Gox did. You don't discover information like that and just wait two months to release it.
Furthermore, the report is heavily biased. None of the alternate, less nefarious, explanations are discussed in any detail.
3.
Let's discuss the contents of that report. The report is flawed for several major reasons, but the main one is that he simply draws more conclusions than the data warrants. This is the same mistake that was made in the Newsweek article three months ago. You can't take two databases, which differ by only a few rows, and claim that some question marks are positive proof that a massive criminal conspiracy has occurred. There are many posts that offer plausible alternatives that are equally likely.
Plus, why aren't people considering the source of this data? The databases that are being claimed as sources for this sensational piece were "hacked" from Mt Gox (in other words, obtained illegally.) In fact, one of these databases was distributed in a compressed archive alongside a program called TibanneBackOffice.exe. When run, it steals bitcoins from the user's computer.
4.
Then there were people like /u/zivilars666, who are quick to exclaim "RIP in peace Mr. Bubble Cycle," despite that there has been no evidence whatsoever that the price has departed from the bubble cycle. I looked back at the post history on Sunday and it looked like a typical bad news day in bitcoins - ("bitcoins are dead," "there will be no bubbles ever again," etc.) All you have to do is replace "Mt Gox" with "China" and you can replicate the sentiment from earlier in the year.
5.
Correlation does not imply causation. Many people here seem to get confused as to which direction the causality lies in many of the events around here.
For example, married people are proven to be happier than single people. However, an examination of the data shows that people who later get married were happier to begin with. Marriage doesn't cause happiness; people who are happy are more likely to meet other people because people like to be around happy people. This is common sense, but many people never look at it that way.
I have always been, and continue to be, of the opinion that the primary driver of all bitcoin events is the price. The price is responsible for software development, mining (or lack thereof), and publicity. Developers do not see higher prices as a result of product launches, miners do not set the price, and publicity begins to occur after the price is rising.
People continue to look in the wrong direction when they examine bitcoins prices. They are looking for "triggers" and causes. Always make an effort to turn the question around and ask yourself whether the direction of causality is reversed for any given question in bitcoins.
6.
Given #5, these bots could not have driven the price on the opposite side of the bubble cycle. If the "Willy" bot were buying up lots of bitcoins during the downtrend of a cycle, it could not have reversed the cycle. When it was buying on the uptrend, it did not cause the cycle to go any higher than it would have anyway. Instead, what happened is that "Willy" acquired coins for whoever or whatever purpose, and those bitcoins were not purchased by other people who wanted to purchase them because the price was too high.
Every person has a threshold above which they will not buy a product. Given enough people, there will be one person at each possible price point. If I'm selling cars, then there may be 50,000 people who will buy the car at $20,012, and 49,999 people who will buy it at $20,013, and 49,997 people at $20,014, and so on. If we only have 20,000 cars, then the price the cars sell at will be dictated (mostly) by the threshold above which the 20,001th person is no longer able to buy.
All people have a limited amount of money. If they can't buy this car, they will buy another brand. In bitcoins, they will buy another asset or they will buy fewer bitcoins. The selling price of the items only rises if there are no other cars (or assets) on the market for people to buy. Therefore, I don't agree with the idea that the entire bubble was caused by this one bot - this not only is unsupported by the actual data, but it doesn't work because there are inferior goods available for the demand to pass to (like stocks).
7.
One type of inferior good that is available for the people who were not willing to buy bitcoins at inflated prices, if the Willy bot was fake, is altcoins. Altcoins are easy to change for bitcoins, exhibit many of the same properties, and are much cheaper. Altcoins rose in value to astronomical highs just when Willy was at its most active. For example, litecoins rose to 1/20 of a bitcoin.
8.
This report is an example of why people who daytrade are unlikely to make money. The idea that bitcoins are highly manipulated is nothing new. Most likely, the reason why that report had zero impact on the price of bitcoins is because the people who perform the manipulation already knew about that.
While the report makes it sound as if this incident were solely responsible for price swings, there are probably bigger price fixing incidents that nobody knows about right now, in both directions.
Other
- If people are wondering about how taxes impact bitcoins, here is an example I used when arguing against a new school project that recently accrued $85m in debt to residents of our township. I work in Ferguson township, which has high taxes. There are many apartments close to work, but I live in Patton township instead, because that allows me to save $1100/yr in taxes at a cost of only $100 in gas per year for the extra eight miles I have to drive per day. Those eight miles are on Ferguson township roads, because I drove across the entire township. I cost them salt, contribute to the potholes every April, pollute the air, and annoy their residents with the noise from my car. I would not need to drive on township roads at all if I lived in the apartments next to the office. So by raising taxes, they not only decreased revenue, but they raised the cost of services they are paying for, because they encouraged me to drive more and pay them nothing. This is an example of the perverse incentives that taxes cause. You don't raise taxes by $1 and earn $1 in revenue. When governments tax bitcoins, it is possible that taxes are raising the price of bitcoins rather than discouraging investment, because taxes are only realized at sale, and there are lower taxes for holding a long time.
- Days until July 24: 58