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itaibn0 comments on A proposed inefficiency in the Bitcoin markets - Less Wrong
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The fact that there are a stock has a random walk behavior in the log-scale does not imply that its expected future price is larger than its current price. Imagine that when a bitcoin is worth 1000$ today it has equal chance tomorrow of going up 100$ or going down 100$. Then if it goes to 900$, it has an equal chance of going up or down 90$ the next day, and similarly, if the price becomes 1100$, it has an equal chance of going up or down 110$. Then the log-price would have variations on the log scale, but at each step the expected value stays the same.
Please place more trust in the competence of mainstream institutions next time.
No, it would have an equal chance of going up $100 or down $90.
I am presenting a model which shows that log-scale fluctuations do not imply an opportunity for making profit. If you believe this model does not properly describe the bitcoin price movement, I suggest you provide empirical evidence to back this up (your model contradicts EMH, so the prior is in my favor). By the way, I believe my model is equivalent to the standard Black-Scholes model. In the log scale I think it is equivalent to a random walk with downwards drift.