I hate banks and I am aware that the world's financial system is a humongous runaway Ponzi scheme (in the strict sense of the word).  You will find that among my tweets.

But I do not see how cryptocoins will save us from it.  They too are fiat money, or rather wannabe fiat money for now. Since one cannot prevent new coins from being started, they will be inflationary too.  New cryptos will be created for the same reason that governments print more money and banks fabricate credit withou assets: because it makes the creator richer at the expense of the users.

And "selling" bitcoin as a safe hedge against inflation, at the present time, makes no sense at all. 

OK, in my parable, after the two swindlers leave, those who remain have less than they had invested.  Each invested 50 or 100 dollars, the scoundrels have taken out 150 net.  But the losers think that they have more than they invested, because they own a highly "valuable asset" -- their place in the circle.  Let's say that they believe that their place is now worth 300 dollars.

A new "customer" comes in and wishes to buy a place in the line.  He pays 300 dollars to one of the original investors, who walks out with that money.  That first "customer" then immediately sells his place in the line to a second "customer" and walks out with 300 dollars.

So the "old investor" made a fat profit (invested 100, walked out with 300) and the "first customer" got in and out with no net profit or loss. Where did the profit of the old investor come from?

Why don't people play this circle game in real life, if it makes everybody rich?

As a rough guess, people who invested in bitcoin must have already poured around a billion dollars into the market, even discounting what they took out. How much of that went to the miners?


Yes, but when a long-term investor sells his stock to another, he is simply transferring the credit of the loan (and any future dividend and appreciations) to him.  So it is as if the initial loan was made by both of them, and they split the profits and risks in a particular way.   

You may be thinking of day traders, who try to make money on price fluctuations that much above the real wealth produced by the company during the time that they hold the stocks.


A company buys back its stock when it wants to reduce the pressure to give out dividends.

Customers buying bitcoins just to make payments are not "buybacks by the network".  They are like day traders who are forced to buy some stock but do not expect to make profit.  Again, they are just the ultimate new investors that bring their wealth (money or goods) into the system, which is used to pay the profits of earlier entrants; and who will get that wealth back only by selling their bitcoins to someone else who will have to put the same amount of wealth in.  Do I need to I tell you how they would fit into my "parable"?

I do not want to bring more discord here.  You all know my views and arguments, if you don't agree with them I do not know what to add.

But let me clarify a couple of misunderstandings:

* Investment in stocks is not a zero-sum game.  A long-term stock investment is a loan to the company, who hopefully uses that money to create new real wealth (goods or services) that is worth more than the money invested in it.  Part of that extra wealth is returned to the long-term investor as dividends, part is returned through the increase in stock price related to increase in the assets of the company (e.g. new factories built with money from profits that was not distributed as dividends).  Thus investing in stocks can make people richer without making anyone poorer.

* Money that is invested into bitcoins is not being given to the "company" -- that is, the bitcoin network -- for it to build the infrastructure and paying the costs of doing its service (which is the "new wealth" that the bitcoin project is meant to create). Most of it goes into the pockets of other traders, some into the pockets of exchange operators.  The "company" does not pay dividends to bitcoin investors, and these do not own a single chip from that "company".  So, investing into bitcoins is not at all like investing in Google or Apple stock.

* By simply moving a fixed amount of money and bitcoins around, bitcoin trading cannot make everybody rich, not even in the average sense.  That is something that a college education may help understand: in basic physics you learn that you cannot create mass, charge, or energy by smartly moving those things around.

It is not dishonest if people know it is a zero-sum game with uncertain odds, before they join.

It becomes dishonest when people are made to believe that it is a good investment -- i.e. that their expected gains are positive.

Every smart people who makes substantial profit with bitcoins must know where his profits came from. Especially those who reserved a couple million bitcoins for themselves at the beginning, and thus (like the "me" in my parable) have invested nothing and will walk out with a fortune.


OK, technically it is not a Ponzi but only a pyramid scheme.  But for the late entrants it is the same thing...

An bitcoin does have some big players who act and profit like the owners of a true Ponzi.  Like that scoundrel in my parable, one can become a "Ponzi-boss" even without the explicit authorization or knowledge of the original bosses.

PS. For those who insist in knowing my negative views, here is the link to that "parable": http://www.ic.unicamp.br/~stolfi/bitcoin/2014-02-17-HowToMakeSomeEasyMoney.html

@KeyserSoze,

I have promised to keep my negative views to myself in this forum, but you insist asking for them...

Is what I wrote on twitter and put on my homepage any different from what I already wrote here?

(You missed my last tweet, "One day bitcoins will be worth their weight in gold".)

Even if bitcoin ultmately succeeds (which I wish it will, but doubt it) and bitcoins becomes extremely valuable (which I very much doubt they will), bitcoin trading is ultimately a zero-sum game.  Any profit that one makes from it is someone else's loss.  In order for @Goat (or someone else) to buy his Lamborghini, @windjc (or someone else) must lose his house.

I believe that adults have the right to gamble their money and property any way they want.  They even have the right to play at this crazy roulette-by-phone where the casinos may not have money to pay off, and the dealers are know to be liars, cheaters, and thieves.

So I have no objections to bitcoin trade and speculation --- as long as the people who come into the game are aware that it is a form of gambling, and that their expected profit is slightly negative (because of fees and other losses). 

However, this particular game will be profitable for its current players only if the price goes up; and that is not likely to happen if the "market" consists of the same guys trading the same bitcoins and the same dollars back and forth among themselves.  In order for the price to go up, and the old players to make substantial profits, new players must come in and bring new money.

So, in that aspect bitcoin trading is indeed a classical Ponzi schema: the money invested by new members is used to pay the large profits of the early joiners -- if these are smart enough cash out while the price is higher than what they paid for their coins.  The net effect of the game is to shift money from the late entrant' pockets to those of the early entrants.

And that is when the game stops being OK.  That is because in order to lure new players, some of the bitcoin "evangelists" are resorting to plain lies, painting bitcoin as a "good investment", an hedge against "rampaging inflation", etc.  They keep showing that false arithmetic of total e-commerce divided by 21 million.  Some still claim that bitcoin payments are untraceable and un-seizeable. (You may have seen my tweets a couple of weeks ago where I argue with someone who claimed just that.)  And the bitcoin salesmen conveniently forget to mention the growing legal barriers, the dozens of exchange failures that ate millions from their clients, and the many other things that would turn sensible people, even uneducated ones, away from the bitcoin game.

One feature of Ponzi schemes is that most people who join feel the urge to become salesmen and convince others to join too.  You do not see long-term stock investors doing that; that's because those people know that other smart investors will look at what the company does, and will not be impressed by sales hype.

It was the opening of the Chinese market that lifted the bitcoin price from the low tens to 1200, and it is the Chinese who are holding it at the present levels.  But that market is no longer growing. So, where will the necessary new suckers come from?

I have seen people here and elsewhere saying that the only hope left now is Latin America.  Well, I cannot sit and watch fellow countrymen being conned, can I?

Several times I felt the urge to end my posts here with a friendly "I wish you all get filthy rich".  But I cannot honestly say that: if some of you do, others necessarily will become filthy poor.  I thought of writing "may you all get back most of what you invested", which is the fairest outcome one could wish for in a zero-sum game.  But I cannot honestly even wish you that, because many people have already walked out of this game with millions of profits or stolen money --- so you all are, like those guys in my parable above, spinning around only a fraction of the money that you all put in.  Sorry, folks.

Wait, the problem is real, but occurs only on Safari (5.1.10)/Macbook.  It does not occur on Fireox/PC.

Google translation from Huobi's site: https://www.huobi.com/


How does that compare to other exchanges?

Often I see here complaints about orders suddenly appearing from nowhere in order books, or statements like "there are only XXX coins left to {buy|sell} on exchange YYY".

The books at the larger sites must be huge (millions of entries perhaps), and each chart site in the world requests that data every few seconds.

Correct me if I am wrong, but those exchanges surely must truncate their answers, delivering only the first N (say, 2000) bids and asks in their order books. 

The summaries that tell how many coins there are to each round price, like the two righmost columns below



are computed by the chart sites or scripts from that truncated data, so they are truncated, too.   Depending on the steps and the spacing of the orders, the summary may not fill the whole space allocated on the chart.

In the example above, for example, surely there were many asks above 670 USD and many bids below 270 USD, and many more than 2058 coins for sale. 

No, what I know about Huobi is basically from sources in English, e.g.

http://forexmagnates.com/exclusive-interview-ceo-of-largest-bitcoin-exchange-in-the-world-huobi-responds-to-mt-gox-situation/

http://www.csmonitor.com/World/Asia-Pacific/2013/1206/Why-the-Chinese-can-t-get-enough-of-Bitcoin-despite-bank-ban


Well, it is hard to tell what the volume means, at any exchange.  The plots of BTC-China or Kraken Bitcoin.de, for example, are quite weird.

I would consider legitimate (i.e. not "fake") any transaction between competing people or organizations, whether it is done manually or with the help of scripts and robots.  Any such transaction contributes to define the true "market price" of the item.   To a first approximation, it should not matter if the same coins are being traded back and forth many times, or how many distinct people are trading, as long as each transaction happens because both sides believe that the price is good.  To me a transaction is "fake" only if the buyer and seller are the same, or are colluding outside the market place.

Methinks that the volume of legitimate transactions is a good measure of the importance of a market.

The higher the volume, the higher the liquidity and the smaller is the spread, therefore the price is pinned down more accurately.  At BTC-e, forexample, the price often is bouncing rapidly up and down by a few dollars, so that the 1-minute plot look like a broad belt.  You hardly see that at Huobi; the plot looks more like a line than a belt.

Usually, the higher the volume, the smaller is the effect on the price of buying or selling a fixed amount of coins.  Therfore, arbitrage trading between a high-volume market and a low-volume market generally has little effect on the price of the former, instead copies the price to the latter.  For example, I would guess that the sharp steps one can see in the 1-minute plots of BTC-China and Bitstamp (but not on Huobi's), at periods when there seems to be little real activity, are arbitrage transactions aligning their prices with the global market.

For all I have seen in the past 2-3 months, I believe that most of Huobi's volume is legitimate in this sense.  At the other exchanges, I am not so sure; but even if it is all legitimate, the volume at non-Chinese exchanges is only 1/3 to 1/4 of the volume at Huobi and OKCoin.   Whatever one may think of the "quality" or "meaningfulness" of their trade, it counts the same for the definition of BTC's price.

Also I do not think that there is any government interference with the bitcoin trading inside the exchanges.  My understanding of the news is that the PBOC, having blocked the use of BTC as a currency in commerce, and prohibited banks from playing with it, now sees bitcoin trading within the exchanges as a kind of gambling, and therefore does not care about it at all.


Note that I said "bitcoin trading", not "bitcoin".   Bitcoin development and other activities (such as promoting its commercial use) seem to be mostly "non-Chinese things".   Given the restrictions on use of BTC in China, I do not expect that there will be any significant development or advocacy there, except perhaps in mining technology.

EDIT: BTC-e --> Bitcoin.de

Daily volumes of BTC trade to/from USD and other national currencies (in kBTC):


             !    Mon !    Tue !    Wed !    Thu !    Fri !    Sat !    Sun !    Mon !    Tue !
  EXCHANGE   !  02/10 !  02/11 !  02/12 !  02/13 !  02/14 !  02/15 !  02/16 !  02/17 !  02/18 ! Currencies considered

  Bitstamp   |  71.86 |  40.06 |  15.51 |  28.15 |  63.38 |  20.76 |  26.40 |  19.90 |  14.83 | USD
  BitFinEx   |  41.98 |  39.54 |  12.85 |  17.17 |  53.68 |  10.83 |  16.75 |  15.69 |   8.47 | USD
  BTC-e      |  47.04 |  28.64 |   9.97 |  18.53 |  52.18 |   9.16 |  21.75 |  15.07 |   8.08 | USD,EUR,RUR
  Kraken     |   1.45 |   1.11 |   0.58 |   0.93 |   1.79 |   0.41 |   0.91 |   0.89 |   0.51 | EUR
  Bitcoin.DE |   1.54 |   0.67 |   0.51 |   0.78 |   1.63 |   0.22 |   0.57 |   0.57 |   0.38 | EUR
  CaVirtEx   |   0.77 |   0.53 |   0.29 |   0.41 |   1.16 |   0.15 |   0.15 |   0.15 |   0.21 | CAD
  CampBX     |   0.37 |   0.11 |   0.10 |   0.21 |   0.41 |   0.05 |   0.07 |   0.28 |   0.10 | USD

  SUBTOTAL   | 165.01 | 110.66 |  39.81 |  66.18 | 174.23 |  41.58 |  66.60 |  52.55 |  32.58 |

  Huobi      | 134.09 | 120.08 | 131.86 |  82.39 | 236.27 | 122.80 | 110.57 | 130.41 |  74.04 | CNY
  OKCoin     |  70.49 |  64.22 |  60.79 |  62.49 | 147.26 |  51.45 |  63.63 |  63.05 |  51.46 | CNY
  BTC-China  |  18.23 |  11.17 |  11.01 |   8.02 |  24.87 |   7.55 |   9.08 |   7.86 |   3.86 | CNY
  Bter       |   0.85 |   0.76 |   0.69 |   0.65 |   1.54 |   0.74 |   0.56 |   0.48 |   0.35 | CNY

  SUBTOTAL   | 223.66 | 196.23 | 204.35 | 153.55 | 409.94 | 182.54 | 183.84 | 201.80 | 129.71 |

  MtGOX      |  50.07 |  18.70 |  25.21 |  33.85 |  79.56 |  60.15 | 104.46 |  65.69 |  63.50 | USD,EUR,GBP,AUD,JPY

  TOTAL      | 438.74 | 325.59 | 269.37 | 253.58 | 663.73 | 284.27 | 354.90 | 320.04 | 225.79 |



All numbers were collected by hand from the site http://bitcoinwisdom.com. Beware of possible errors.

For each exchange, the numbers include only the trade volume to/from the currencies listed in the rightmost column. Trade between BTC and other cryptocoins, such as LiteCoin, is NOT included.

The exchange Bter was added to Bitcoinwisdom's menu on 2014-02-15; its volumes for 02/07 to 02/14 have been added
retroactively to the table.

Coinbase is said to use Bitstamp for currency conversion.

Dates on the header line are UTC. Specifically, "01/15" means "from 01/15 00:00:00 UTC to 01/15 23:59:59 UTC". (Beware that Bitcoinwisdom uses your local time, so the date may appear to be off by 1 day.  For example, if you are 2 hours west of Greenwich, it may show "01/14 22:00" when the UTC time is "01/15 00:00".)

NOTE: A few days ago, MtGOX has suspended withdrawals of Bitcoins and national currencies.  Therefore it is essentially isolated from other markets, and its price is completely out of the norm.  The exceptional trade volumes above may be meaningless.

I am deeply sorry, indeed it is working now.  I should have taken a screenshot.

The local timezone changed from GMT-2 to GMT-3 between feb/15 and feb/16, I noticed the problem on feb/18 morning IIRC.  I keep the window open all the time. Could it be a transient problem?

Today I hard-reloaded the chart window. Could that have made a difference?

Again, sorry to have wasted your time.

Thanks!... 

I believe that it is a consensus that regression does not help predicting future stock prices from past prices alone; and the limited analysis that I have done agrees with that. You may have seen my previous posts on the log-Brownian (or geometric Brownian) model; although there are some more sophisticated models, they do not seem to be useful for predictions.

The model above exploits some features specific to Huobi that hopefully will let us get around that limitation.  First, Huobi seems to have little trade by unsupervised robots (which have much more varied behavior than humans, and therefore should be less predictable). Their clients apparently have relatively well-defined demographic profile, and are relatively isolated from the rest of the world in terms of economic news.   And, those clients are trading a single item (Bitcoin) and have a relatively narrow channel for injecting money into the system (local banks)

Also, Huobi has a lot more volume and liquidity than the other exchanges; the second largest, OKCoin, has only half as much. So their price is relatively indifferent to the price in those exchanges.  (Rather, it is the other exchanges that apepar to track Huobi's price.)  It is apparent from the charts that price volatility is correlated with trade volume at Huobi -- but not at other exchanges, like Bitstamp. 

As explained  earlier, the Chinese Slumber Model assumes that before Huobi's clients go to bed, their "shop closing" actions are such that the price returns to some "natural" value by the "slumber times" (around 19:00 UTC, 3:00 am in China).  That "natural" price is  suposedly masked during daytime by the large swings that result from intense trading.   Moreover, the model assumes that the "natural" price is determined less by trading than by other "physical" factors that vary slowly with time -- such as the amount of money available for trading at the exchange.

The trend analysis is therefore trying to determine the variation of those "physical" factors --- and not of the prices set by trading,  which, as observed above, appear to be largely random.


I would not call it "artificially inflated".  Since they charge no fees, we should expect that they have many more actively trading clients than other exchanges, and also that each client generates a lot more trade volume than a client would elsewhere.

I have seen many claims that their volume is "fake", but I have yet to see evidence of that.  Their volume data seems to be consistent with humans assisted by robots or scripts.

On the other hand, evidence fo fake volume at MtGOX and other sites are quite strong. For example, by the end of January MtGOX's volume was as low as 15 kBTC/day; some dumb robots, that worked steadily day and night, may have accounted for half of that.

It may not be a pleasant conclusion for non-Chinese bitcoiners, but it seems undeniable that bitcoin trading is now largely a Chinese thing; specifically, that the price of bitcoin is now largely determined by the Chinese traders at Huobi and OKCoin., and carried to other exchanges by arbitrage.

I am surprised that sources like Coindesk pay so little attention to Huobi and OKCoin -- or even try to hide their existence.  I found only one interview with Huobi's CEO -- and was on a general finance source, not in a bitcoin news site.  We have only vague hints about the number, demographic profile, and motivations of their clients.

Actually, the articles at bitcoin news sources seem to be uncritical copy-paste of press releases, and have very little hard statistics -- such as the number of active users of bitcoin, active traders at each exchange, etc.

Where have all the investigative journalists gone?

Here is the Chinese Slumber Method predicition for tomorrow:


Prediction valid for: Wednesday 2014-02-19, 19:00--19:59 UTC (not before, not after)
Huobi's predicted price:  3725 -- 3825 CNY (3775 plus or minus 50)
Bitstamp's predicted price: 605 -- 625 USD (615 plus or minus 10)

The prediction for Huobi above was obtained by fitting a weighted least squares straight line to the last three True Slumber Points, namely the mean prices at February 15, 17, and 18, 19:00--19:59 UTC (rightmost three yellow dots in the chart below), and extrapolating that trend line for one more day.  The prices are ~3961, ~3905, and ~3817, respectively; which extrapolate to ~3775 CNY. 



The prediction for Bitstamp, as usual, is that for Huobi divided by the normal currency factor R = 6.12.

NOTE 1: Those predictions are conditional to Huobi's clients and their robots being all in bed by Feb/19 19:00 UTC.  Otherwise the Method offers no prediction.

The Chinese Slumber Method Prediction almost worked this time!!!

Checking the prediction for Huobi

Prediction posted: Tuesday 2014-02-18, 01:14 UTC
Prediction valid for: Tuesday 2014-02-18, 19:00--19:59 UTC (not before, not after)
Huobi's predicted price:  3860 -- 3920 CNY (3890 plus or minus 30)
Huobi's actual price (L -- H): 3810 -- 3824 CNY (3817 plus or minus 7)
Error center-to-center: 73 CNY

The prediction is the rightmost blue rectangle in the chart below, just above the red/green price bars. 

The big dots on top of the price plot are the Slumber Points (prices at 19:00 UTC every day).  The True points (yellow) are those which had nearly zero trading volume at 19:00; the False ones (olive-brown) are those where Huobi's clients and/or their robots kept trading through the night.

The yellow line is the least-squares-fitted  trend line that was used to make the prediction.




Checking the prediction for Bitstamp

The Bitstamp predicition is the Huobi prediciton divided by 6.12

Bitstamp's predicted price: 625 -- 645 USD (635 plus or minus 10)
Bitstamp's actual price (L -- H):  617 -- 625 USD (621 plusor minus 4)
Error center-to-center: 14 USD

In the chart below, the dots are Huobi's Slumber Point prices divided by 6.12 (or 6.40  for feb 7--9)

Someone suggested that he could tell the addresses and move the bitcoins among his addresses so prove that they are his.

Indeed, that should make people wonder, shouldn't it?


Bernard Madoff too knew that he would be locked up if he didn't deliver.  Guess what?

Could it be that we'll soon witness the first definitive death of an altcoin -- the "MtGOX Bitcoin"?