Forecasting a Cryptocurrency’s Price

Disclosure: I own Ergo. This is a condensed summary of why I purchased it. I’m happy to share what I learned, but this is not investment advice. I don’t know you. I don’t know your situation. Cryptocurrencies are a speculative investment, and you could lose all your money. If that’s not something you can live with, then do something relatively safe, like invest in an index fund, a certificate of deposit at a major bank or U.S. Treasuries. Also, if you are making investment choices based solely on the suggestions of some random blog on WordPress, written by The Deity knows who, without engaging your own mind and taking responsibility for your own choices, then you deserve to lose all your money. Caveat emptor!

“a more rational way to look at things is the total crypto cap multiplied by the percentage of market dominance divided by number of coins.

so right now [Ergo is] at .02% when the whole crypto space achieves 8 trillion (4x) and if ergo were to gain 1% dominance it would be $226.53

$8T x .01 / 35,316,150 = 226.53

you change your numbers depending on your beliefs and timeline. so say 2025 you think it’ll be 4 trillion total crypto cap but you think ergo will get to 5 percent market cap then you get $8T x .05 / 35,316,150 = 566

edit: this is also why cardano sucks ass from a strictly financial viewpoint. put it through these numbers you’ll see”

King_Ghidra_’s comment from discussion “If ERGO has the market cap of … (Hopium version)” Reddit.com. .

Looking for Patterns in the Chart

I read the above, and I thought it was an interesting forecasting question. It seems to be a fairly common one. Let’s try to ballpark the numbers, as King Ghidra has done. However, I’d like to update these numbers using some data-centric assumptions rather than my beliefs.

Coinmarketcap has the data for Total Cryptocurrency Market Cap. Unfortunately, they don’t provide the data. So, we are going to have to develop a proxy.

If we look at the entire length of the Coinmarketcap chart, it looks like there’s a pattern, where there was a peak in January 2018 and another peak in May 2021. That’s roughly about 30 months. Before each peak, there was a 3-6 month ramp up that goes up by a multiple of 7. Is that a pattern? How do we measure the length of these series?

One way would be to measure the low between two highs. So, it gets to about a $100 billion in January 2019. It climbs by a multiple of three up above $300 billion by July 2019. Drops down to $150 billion by March 2020. Then, it increases from that low to above $300 billion by August 2020. From August 2020 to the peak in May 2021, there’s an 8 fold increase. From $350 billion to $2.5 trillion.

Let’s look at the run-up to the January 2018 peak. You’ll immediately notice that the scaling of the data makes it hard to know where to start. So, let’s look from the beginning of the series until it reaches $20 billion, or January 2017. At that scale that it was a low of $929 million in July 2013. There was a peak of $15.6 billion in December 2013.

It dropped from the December 2013 peak of $15 billion to $3.5 billion in January 2015. Let’s count the doublings:

  • $3.5 billion (January 2015)
  • $7 billion (November 2015, 11 months)
  • $15 billion (June 2016, 7 months)
  • $30 billion (April 2017, 10 months)
  • $60 billion (May 2017, 1 month)
  • $120 billion (August 2017, 3 months)
  • $240 billion (November 2017, 3 months)
  • $480 billion (December 2017, 1 month)
  • $815 billion (January 2018, 1 month)

Again, we see the same pattern, it takes a full year to drop from the January 2018 peak of $815 billion to $100 billion in January 2019. It triples and drops back down to $100 billion by April 2020. Then, let’s track the doubling again:

  • $150 billion (April 2020)
  • $300 billion (July 2020, 3 months)
  • $600 billion (December 2020, 5 months)
  • $1,200 billion (February 2021, 3 months)
  • $2,400 billion (May 2021, 3 months)

So, the size has gotten large enough that doublings are going to be less frequent. But, right now, have we hit a peak? Consider this: the cycles seem to be getting longer. In 2013, it was 5 months from bottom to top. In the 2015-2018 cycle, it was 35 months. If April 2020 is the starting point, then peak should be sometime in March 2023. If we assume a 14 month decline and 14 month recovery before another spike, the next peak after that one would be sometime in July 2025.

I’m inclined to think that the peak for this cycle will be a little sooner than March 2023, say sometime between July 2022 to December 2022. This will put the next peak somewhere around January 2025.

Forecasting the Total Cryptocurrency Market

After chart review, let’s try forecasting for January 1, 2025, which also has the nice property that it matches the quote introducing this topic. So, what kind of range to expect as possible by January 1, 2025? When I do a quarterly sampling of the data from Coinmarketcap, and then run it through R trying to determine a probability interval for 2025-01-01, I get a 95% confidence interval that total market cap will be between $0 and $6.2 trillion.[1,2] This approach likely underestimates the values because a quarterly sampling cuts out a lot of movement in the chart.

If I use Bitcoin as a proxy, then I can pull the data from the FRED database using the following command and these R scripts[3,4]

> fred(code="CBBTCUSD", begin_date="2017-01-01", closing_date="2025-01-01", bins=c(0.05, 0.5, 0.95), prob_type="probands")

This returns:

Projected mean: 242494.622314164
Projected standard deviation: 89419.7876711661
   bins     probs
1  0.05  95412.16
2  0.50 242494.62
3  0.95 389577.08

When I run the same data but putting it through a Monte Carlo function instead, I get a greater than 70% chance it will be above $250,000 on 2025-01-01.[4]

Let’s suppose Bitcoin is either $95,000, $250,000 or $390,000 on 2025-01-01. When you correlate the price of Bitcoin to the total cryptocurrency market cap on a quarterly basis (January 1, April 1, July 1 and October 1), it’s roughly price * 31 million with a standard deviation of about a million. This would put the price range as follows:

  • Low: Bitcoin price: $95,000, Total Cryptocurrency Market cap: $2.945 trillion
  • Projected: Bitcoin price: $250,000, Total Cryptocurrency Market cap: $7.750 trillion
  • High: Bitcoin Price: $390,000, Total Cryptocurrency Market cap: $12 trillion

As a sanity check, you can check the chart again. My best guess would be that total crypto market cap on 2025-01-01 will be between $6-8 trillion. For this question, let’s assume the lower end of the range – a $6 trillion market cap on January 1, 2025 – as being a good, conservative guess.

Forecasting a Cryptocurrency (Ergo)

Now, to return to the comment at the top, the poster proposes a formula:

(total crypto market cap on 2025-01-01 * market share of a cryptocurrency) / number of coins = price

Let’s make the calculation of market share and coins easy and establish a floor. Suppose that Erg maintains its current market share. On Saturday, September 25, 2021, the cost of Erg is $14 and there are 43,705,365 Erg in circulation. That gives us a Ergo market capitalization of ~$612 million. Total cryptocurrency capitalization today is $1.9 trillion. So, the market share is 0.0032210. For this forecast, let’s just assume the maximum number of Erg, 97,739,924.

Then, we calculate for different hypothetical values:

  • $4 trillion total crypto market cap, same market share, all coins: ($4 trillion * 0.003221) / 97,739,924 = $131.82
  • $6 trillion total crypto market cap, same market share, all coins: ($6 trillion * 0.003221) / 97,739,924 = $197.73
  • Double the market share at $6 trillion total crypto market capitalization, all coins: $263.64
  • $8 trillion total crypto market cap, same market share, all coins ($8 trillion *0.003221) / 97,739,924 = $263.64
  • Double the market share at $6 trillion total crypto market capitalization, all coins: $395.29
  • Double the market share at $8 trillion total crypto market capitalization, all coins: $527.28
  • $6 trillion total crypto market cap, 1% market share, all coins: $613.87
  • $6 trillion total crypto market cap, 2% market share, all coins: $1,227.75

On review of the above, I’m forecasting that Erg has a 90% chance of getting above $1,000 before or on January 1, 2025. I think cryptocurrencies are starting to get major traction so the conservative $6 trillion is probably too low. Given Ergo technical capabilities, I can see as much as an order of magnitude increase in market share by January 1, 2025. That would give a top end of ($8 trillion * 0.03) / 97,739,924 = $2,455. More likely, it will be something like ($7 trillion * 0.015) / 97,739,924 = $1,074.27. Add in normal fluctuations, easy to see it crossing $1,000 in the period, if this is the base case.

Let’s check back in ~1,200 days or so and see how I did.

As a reality check, even if you invested $1,000 at $14, right now, that’s 71.428 Erg. If the price went to $1,000, that’s $71,428. So, hard to become a millionaire without getting into a cryptocurrency before it’s above $1. On the other end, it’s hard to know which of the thousands of coins to invest in at that stage. It’s a veritable chicken and egg problem. But, $71,428 isn’t a bad haul, a salary for a couple of years in many folk’s cases.

Conclusion

Most of the work is in trying to come up with a reasonable market cap for the entire crytpocurrency space. Once you have that number, it is fairly straight-forward to calculate a minimum based on current market share of a coin. The same procedure could be used to forecast any cryptocurrency you are interested in.

References

  1. https://gitlab.com/cafebedouin/gjp/-/blob/master/csv.R
  2. https://gitlab.com/cafebedouin/gjp/-/blob/master/functions/probands.R
  3. https://gitlab.com/cafebedouin/gjp/-/blob/master/fred.R
  4. https://gitlab.com/cafebedouin/gjp/-/blob/master/functions/monte-full.R

Joe vs Elan School

Trigger Warning: If you watch this trailer for a documentary about Elan School, you’ll get a good sense of what you are in for. Joe vs Elan School isn’t going to be easy reading. Don’t like, don’t read.

A real place that Joe Nobody experienced and is now telling his story via a comic, Joe vs Elan School.

“To make it clear, I am not doing this for financial gain. Do I want this story to gain fame and worldwide exposure? Of course. But not because I personally want to be famous (I mean, I am using a fake name) but because places like Elan still exist and this entire industry needs to be exposed for the corrupt shit-stain on humanity that it represents.”

-Joe Nobody, “Learn More.” Joe vs. Elan School.

I’ve started Joe vs Elan School, but not finished yet. It reads as an indictment of all programs of this sort, such as boot camps, “scared straight”, and all the other institutionalized efforts to bully people into conformity, that punish mental illness or that are simply abusive.

bash: TOTP From the Terminal With oathtool

TOTP is Time-based One Time Password. Most people use applications on their phone for TOTP, such as andOTP, Google Authenticator, and related apps. But, as we move from using a phone as a second factor for what we are doing on a computer to a phone being the primary way we interact with the Internet, it makes sense to make the computer the second factor. This is the idea behind this script. It is based on analyth’s script, except I stripped out the I/O.

#!/bin/bash

# Assign variables
google=$(oathtool --base32 --totp "YOUR SECRET KEY" -d 6)
wordpress=$(oathtool --base32 --totp "YOUR SECRET KEY" -d 6)
amazon=$(oathtool --base32 --totp "YOUR SECRET KEY" -d 6)

# Print variables
echo "google: ${google} | wordpress: ${wordpress} | amazon: ${amazon}"

This will print:

google: 123456 | wordpress: 123456 | amazon: 123456

However, I didn’t like the idea of my one time password codes only being protected by normal file protections on a Linux system. I thought it should be encrypted with gpg. So, I saved it to a file in my scripts directory, totp, and encrypted it with my public key. If you don’t have a gpg key pair, instructions are available online.

$ gpg -r your@email.com -e ~/pathto/totp

Then, to run the shell script, do:

$ gpg -d ~/pathto/totp.gpg 2>/dev/null | bash

This will prompt you for your gpg password and then run this script. You likely won’t want to remember this string of commands, so you could make your life easier by adding it as an alias under .bash_aliases

alias totp='gpg -d ~/pathto/totp.gpg 2>/dev/null | bash'

Revisiting “A China Prediction”

…there’s going to be a reckoning, and the funny thing is that reckoning is going to begin in China and then eventually spread to the rest of the world. Whether it will happen in close proximity to the end of the COVID-19 pandemic remains to be seen, but there is definitely a short term correction and a longer term debt cycle deleveraging that are being put off by these policies. At some point, it will no longer be able to be kept at bay.

-cafebedouin, “A China Prediction: A Debt Deleveraging in a Decade.” cafebedouin.org

Today might be the day. Look for news on Evergrande and whether that will send China into recession. It probably won’t be Lehman Brothers, but it’s not going to be trivial. This comment seems about right to me:

“It won’t be a financial crisis, but a controlled burn of the world’s 2nd largest economy.”

-Kent Willard quoted in Adam Tooze, “Adam Tooze’s Top Links: Is Evergrande “China’s Lehman moment”? (#21)” adamtooze.substack.com. September 19, 2021.

Amazon’s Censorship of Devil Daddy

“Censorship is alive and well over at Amazon Kindle. Last time it was our scholarly edition of the rare 1881 Victorian gay text Sins of the Cities of the Plain, which they banned for several years. Now they’ve banned the ebook of John Blackburn’s 1972 horror novel Devil Daddy, while refusing to explain why. At Amazon, any book can be blocked from sale at some random employee’s whim, with no right of appeal. Please remember that you have a choice of where to shop, and all our ebooks are available on our site, as well as Nook, Kobo and iTunes.

If you can’t zoom in on the screenshot below, here is the email from Amazon:

“As stated in our content guidelines, we reserve the right to determine what content we consider to be appropriate. This content includes both the cover art image and the content within the book. We’re unable to elaborate further on specific details regarding our content guidelines…”

-Valancourt Books, “September 2021 Update, part 2“.

I should have known. But, this is the first time I’ve heard of Amazon censoring books. When the largest retailer of book refuses to carry particular titles, especially ones that are controversial in some way, it cheapens the public discourse. Devil Daddy may not be to the taste of the average American, but the average American’s taste and community standards is a horrible basis for content guidelines.

Grok the Modern Vision of Blockchains

“…this course will focus on the fundamental principles of blockchain design and analysis, such as they are in 2021 (it’s still early days. . . ). The goal is to equip you with the tools and concepts to evaluate and compare existing technologies (cutting through the rampant marketing crap), understand fundamental trade-offs between the goals one would want from a protocol or application, and perhaps even create something new and important in the near future (because it’s early days, you can have a tremendous impact on the area’s future trajectory).

It’s worth recognizing that we’re currently in a particular moment in time, witnessing a new area of computer science blossom before our eyes in real time. It draws on well-established parts of computer science (e.g., cryptography and distributed systems) and other fields (e.g., game theory and finance), but is developing into a fundamental and interdisciplinary area of science and engineering its own right. Future generations of computer scientists will be jealous of your opportunity to get in on the ground floor of this new area—analogous to getting into the Internet and the Web in the early 1990s. I cannot overstate the opportunities available to someone who masters the material covered in this course—current demand is much, much bigger than supply.

And perhaps this course will also serve as a partial corrective to the misguided coverage and discussion of blockchains in a typical mainstream media article or water cooler conversation, which seems bizarrely stuck in 2013 (focused almost entirely on Bitcoin, its environmental impact, the use case of payments, Silk Road, etc.). An enormous number of people, including a majority of computer science researchers and academics, have yet to grok the modern vision of blockchains: a new computing paradigm that will enable the next incarnation of the Internet and the Web, along with an entirely new generation of applications.”

-Tim Roughgarden, “Lecture 1.” COMS 6998-006: Foundations of Blockchains. github.com. September 15, 2021.

h/t Alex Taborrak in Marginal Revolution.

The first lesson is fairly easy to understand. Looking forward to reading more.

Is/Ought Fallacy: Exhibit A

“Crypto is gambling, and you should never gamble more than you can afford to lose, right? So the only people who held onto their bitcoin when it was worth $100,000 dollars were:

* People who could afford to lose $100,000

* People who couldn’t afford to lose it and were therefore making a very, very stupid gamble

And that’s the same at every dollar amount. Some people can’t afford to lose $1000, some people $100, but whatever level you’re at, you would have and should have sold when it hit that figure.

That means it’s literally not possible for a sensible person to make life-changing amounts of money from cryptocurrency, because the only way to do it is to bet more than you can afford to lose.”

McKinley Valentine, “No FOMO: If you’d bought bitcoin 10 years ago, you wouldn’t be rich today.” The Whippet. September 15, 2021.-

The way logic works is if you argue something is not possible, then pointing to one (or dozens of) counter-example(s) refutes your argument. You’ll notice the chart after the table of names that indicate that “investors” make up the majority of Bitcoin billionaires. So, it is literally possible. If you had limited resources, it could have been as simple as putting together a mining rig, well within the capabilities and budgets of most technical people back then.

If you want to feel good about not investing in Bitcoin back in its infancy, consider what sudden wealth tends to do to people talked about in this classic Reddit post on the lottery. It’s enough to make you never want to be rich, ever.