John_Maxwell_IV comments on Bitcoin Cryonics Fund - Less Wrong

7 Post author: lsparrish 14 April 2013 05:59AM

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Comment author: John_Maxwell_IV 09 April 2013 11:12:45PM 4 points [-]

now that it's ~$233

So maybe the bubble is still growing... I don't see how that should make you reconsider much. I wouldn't be super surprised to see bitcoin hit $1000 or greater, but I also think it's likely to lose 50% of its value or more at some point in the next 12 months.

I don't think bitcoin is a bad long-term investment. Maybe not even at the current price, for 1% of your portfolio or whatever. But I do think the recent rise has been overwhelmingly speculation-driven, and a panic is pretty likely. I think Bitcoin's price as a commodity isn't necessarily related to its use as a currency, either. The more volatility in bitcoin, the more merchants (like reddit) will convert out of bitcoin after completing a transaction. We can do this kind of fundamental analysis all we want, but realistically I think speculation has been and will be the overwhelming factor affecting bitcoin prices... and speculation is random and hard to predict, hence the rebalancing recommendation. (Has there been any investigation in to bitcoin transaction volume by speculators vs real usage?)

But it sounds like you're a lot more informed on this issue than I am. I'm also sick right now and therefore less intelligent than usual :P

Comment author: [deleted] 10 April 2013 08:06:51PM *  4 points [-]

but I also think it's likely to lose 50% of its value or more at some point in the next 12 months.

$133 as of now. (Bitcoincharts.com is down, but I think I saw it at around $260 this morning.)

Comment author: satt 11 April 2013 01:59:44AM 2 points [-]

Mt.Gox is giving a high of $266 and a low of $105 right now, so in that sense it's lost ≥50% of its value already. But that's exaggerated by cherrypicking the high & the low, and the exchange rate's hovering around $170 now. We'll have to wait and see whether it returns below $130ish and stays there.

Comment author: gwern 09 April 2013 11:31:58PM 3 points [-]

So maybe the bubble is still growing... I don't see how that should make you reconsider much.

The longer a 'bubble' goes on without popping, the less it looks like a bubble and the more like a permanent price increase.

(Has there been any investigation in to bitcoin transaction volume by speculators vs real usage?)

The only one I can think of is the Shamir blockchain paper, which since it's using the blockchain, is a rather naive and guaranteed-to-be-wrong approach.

Comment author: David_Gerard 10 April 2013 07:17:47PM 3 points [-]

cough

Comment author: gwern 11 April 2013 04:44:50AM 5 points [-]

Heh, apparently I have absorbed Sumner's thinking to the extent that I almost wrote his post for him:

When the bitcoin price crash comes, most people will wrongly say; “Aha, I told you that it was a bubble.” But why? Because they will have forgotten about their first bubble prediction. People were calling it a bubble at $2, and again at $30. Now it’s over $200. If it plunged to $35 dollars, the bubble predictors will say they were right all along, but they will have been wrong. They’ve merely remembered their bubble predictions, not where bitcoin was when they made their predictions. [Ha! I wrote this yesterday and delayed posting--that'll teach me. It's $160 tonight]

...I can’t predict where bitcoin is going, but I can predict there will be many false “bubble” claims when it eventually crashes—and it will crash. The only question is whether it will crash from a price so far above the current price, that it’s still a good buy at $160. And the EMH says that the answer to that question is; “God only knows.”

Comment author: gwern 10 April 2013 08:09:22PM *  5 points [-]

Ah, the nay-saying begins. "Oh no, it's only up 5x over the last month and not 10x!" Remember that the predictions I was talking about blowing were that it would peak in the $30s or $40s; I and and anyone like me was wrong, still are wrong, a fall to 'just' $100 does not make me feel much better about having blown them, and I will still have learned that there are enough people willing to buy into Bitcoin for any reason that its exchange rate can be pushed all the way to $260.

More generally, just as a large price increase does not prove that Bitcoin will ultimately not be a bubble and will go to $100k, a large price decrease does not prove that Bitcoin will ultimately be a bubble and go to $0. We of all people should know to not apply double standards and hindsight bias.

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