Using Benford’s Law to Detect Bitcoin Manipulation • Hacker News Board

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#11

Post by dannyw » Sun, Jul 25, 2021, 10:59 AM UTC

qPM9l3XJrF wrote: post #10

I don't buy it. My intuition here is that Benford's law is a thing because for pretty much any statistical distribution, large numbers are less likely than small numbers, and small numbers are more likely to start with 1. But I'd only expect this effect to show up when aggregating across many different statistical distributions (e.g. looking at all stocks in the S&P 500 at once) rather than looking at individual dist…

Correct. I've been in the bitcoin space for a decade now, and there were only brief moments* where it was difficult to buy or sell at the price quoted by major exchanges.

* DDoS attacks, exchange illiquidity, etc.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#12

Post by louwrentius » Sun, Jul 25, 2021, 11:25 AM UTC

Joeboy wrote: post #4

louwrentius wrote: post #2

Frankly, I can’t judge the merits of this article because I lack the knowledge required. But I think at this point we know that all cryptocurrencies are ‘greater fool’ “investments”. [1] They are in every way totally irrelevant and detrimental to society. Governments are unfortunately slow to crack down on the exchanges, although progress is being made. And that effort is essential to battle the cancer that is the ra…

> But I think at this point we know that all cryptocurrencies are ‘greater fool’ “investments” It seems to me to be very apparent that we do not all know that. It is in fact a point of significant controversy.

I don’t think so.

It’s quite simple: where do the profits come from?

Other people, who by definition will lose money because crypto doesn’t create value.

A large amount of people will hold the bags of worthless currencies while a few laugh their asses off in their lambo’s.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#13

Post by xiphias2 » Sun, Jul 25, 2021, 11:42 AM UTC

louwrentius wrote: post #12

Joeboy wrote: post #4

Earlier quoted context omitted.

> But I think at this point we know that all cryptocurrencies are ‘greater fool’ “investments” It seems to me to be very apparent that we do not all know that. It is in fact a point of significant controversy.

I don’t think so. It’s quite simple: where do the profits come from? Other people, who by definition will lose money because crypto doesn’t create value. A large amount of people will hold the bags of worthless currencies while a few laugh their asses off in their lambo’s.

El Salvador's Bitcoin Beach project is a great example of people profiting from a debit based value network instead of a credit based financial system: even though both US and El Salvador had USD as the legal tender, it took $10 to remit $50 through the western union network.

Lightning network (which is using Bitcoin as a settlement network) is both dramatically lowering the fees and provides instant debit transfer from an El Salvadorian living in US remitting money to his/her parents in their village (or directly paying the rent / gas bills) instead of the parents needing to travel hours by bus to the city.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#14

Post by Metacelsus » Sun, Jul 25, 2021, 11:44 AM UTC

Gys wrote: post #6

hhjj wrote: post #3

Maybe he should try with prices in yen...

The currency against which BTC is exchanged the most is very likely the one that shows the best fit (most perfect market). Assuming that currency is the USD I expect any other currency would result is an even worst fit

Presumably yen, being a smaller unit of money, would have the prices spread out over more logs. So Benford's law might be a better fit.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#15

Post by zeckalpha » Sun, Jul 25, 2021, 11:44 AM UTC

hhjj wrote: post #3

Maybe he should try with prices in yen...

There are other problems with the article but currency exchange shouldn’t substantially affect the distribution.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#16

Post by conformist » Sun, Jul 25, 2021, 11:45 AM UTC

dannyw wrote: post #7

What is the statistical likelihood of this appearing by chance? Note that 2014 to today isn't actually that long of a timeframe, as prices in a time-series are highly linked to the previous data point. Berkshire Hathaway has been trading for several decades; so that's 40 years of data; as compared to 7 years of data. yet the author, by using the same charts, seems to falsely imply that these are remotely comparable.…

Isn't Andrew Gelman's take more like "Look what they did, that's kind of interesting, what do you think?" rather than "look at this article, it is true"? See also the comment section.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#17

Post by Joeboy » Sun, Jul 25, 2021, 11:59 AM UTC

louwrentius wrote: post #12

Joeboy wrote: post #4

Earlier quoted context omitted.

> But I think at this point we know that all cryptocurrencies are ‘greater fool’ “investments” It seems to me to be very apparent that we do not all know that. It is in fact a point of significant controversy.

I don’t think so. It’s quite simple: where do the profits come from? Other people, who by definition will lose money because crypto doesn’t create value. A large amount of people will hold the bags of worthless currencies while a few laugh their asses off in their lambo’s.

> I don’t think so

But the fact you don't disagree with yourself doesn't mean other people don't disagree with you.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#18

Post by nobrains » Sun, Jul 25, 2021, 12:15 PM UTC

Why do some people keep trying to prove Bitcoin as a pump and dump scheme? Yes it has pumps and dumps, but if you zoom out, those pumps and dumps get smoothed out and you see a digital asset which keeps increasing in value because people see it as a hedge against USD and other currencies inflation. The increase in value is not infinite, and that can also be seen in the price increase curve (log). The price increase is slowing. Why is it difficult to come to the conclusion that initially Bitcoin price increase will be volatile and eventually it will come to parity, decreasing the volatility. From that point onwards, the price will be more closely related to actual inflation (world over).

(The above purposefully ignores the other debate about electricity, usage, etc. to keep the discussion simplified.)

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#19

Post by acover » Sun, Jul 25, 2021, 12:26 PM UTC

nobrains wrote: post #18

Why do some people keep trying to prove Bitcoin as a pump and dump scheme? Yes it has pumps and dumps, but if you zoom out, those pumps and dumps get smoothed out and you see a digital asset which keeps increasing in value because people see it as a hedge against USD and other currencies inflation. The increase in value is not infinite, and that can also be seen in the price increase curve (log). The price increase i…

Gold isn't even an inflation hedge in the scale of one's lifetime, why will Bitcoin be different?

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#20

Post by nobrains » Sun, Jul 25, 2021, 1:04 PM UTC

acover wrote: post #19

nobrains wrote: post #18

Why do some people keep trying to prove Bitcoin as a pump and dump scheme? Yes it has pumps and dumps, but if you zoom out, those pumps and dumps get smoothed out and you see a digital asset which keeps increasing in value because people see it as a hedge against USD and other currencies inflation. The increase in value is not infinite, and that can also be seen in the price increase curve (log). The price increase i…

Gold isn't even an inflation hedge in the scale of one's lifetime, why will Bitcoin be different?

Gold is an inflation hedge in many, many countries.