MIT computer scientists can predict the price of Bitcoin
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MIT computer scientists can predict the price of Bitcoin
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Re: MIT computer scientists can predict the price of Bitcoin
#2The paper states that the strategy was simulated with live data and makes no mention of slippage. I've never traded bitcoin so I'm not sure how difficult it is to get fills, but that along with spreads are non-trivial components of real trading.
Re: MIT computer scientists can predict the price of Bitcoin
#3... for the next 15 minutes.
When you predict the future of a market, you change the future of that market. People start investing on the basis of your predictions and whatever opportunity for profit you found is closed. This is why HFT people iterate constantly and also why they put their servers as physically close to the market as possible.
Re: MIT computer scientists can predict the price of Bitcoin
#4This seems like massive historical overfit, which can lead to arbitrarily precise fit, but no predictive capability.
Any model, if given enough parameters, can be made to match historical data to an arbitrary degree.
I also run several Bitcoin bots. I can tell you that slippage is not insignificant. If you make transactions every ~10 seconds and incur 0.1% fees each time, this is an extremely significant effect in aggregate. Also bid-ask spreads, while usually small, often aren't in periods of high volume.
Re: MIT computer scientists can predict the price of Bitcoin
#5No they can't. If they could they wouldn't tell anyone, and they would make millions (billions?) of dollars.
Re: MIT computer scientists can predict the price of Bitcoin
#6They should have made more money rather than publishing more quickly. It used to be possible to do these sorts of things to the stock market but when these sorts of regularities are discovered the process of exploiting them also eliminates them once enough money is being made. Heck, a major trading firm got started by noticing that stocks went down on the weekend (and of course they don't any more).
Re: MIT computer scientists can predict the price of Bitcoin
#7They didn't include any discussion of:
1) execution (are they expecting to buy on the bid and sell the offer?).
2) commissions. They only made 3,362 yuan on 2,872 trades. A yuan is about 12 cents, so they are making 15 cents USD per trade.
A .1% commission would cost them roughly 5 yuan per trade, but they are only making 1.17 yuan/trade.
Re: MIT computer scientists can predict the price of Bitcoin
#8This kind of innovation is cool, but it's a zero sum game. The bitcoin markets are already driven by competing bots. Their profits will be reduced as other bots iterate on their algorithms.
Re: MIT computer scientists can predict the price of Bitcoin
#9This seems like massive historical overfit, which can lead to arbitrarily precise fit, but no predictive capability. Any model, if given enough parameters, can be made to match historical data to an arbitrary degree. I also run several Bitcoin bots. I can tell you that slippage is not insignificant. If you make transactions every ~10 seconds and incur 0.1% fees each time, this is an extremely significant effect in ag…
"Any model, if given enough parameters, can be made to match historical data to an arbitrary degree."
I've known this forever but for some reason haven't heard this precise statement of it. Thanks.
Reductio ad absurdium: imagine a model where the number of parameters equals the number of data points. Obviously that model will have perfect fit.
Predicting the future is hard. Predicting the future without a causal understanding of the system is epistemologically questionable.
Re: MIT computer scientists can predict the price of Bitcoin
#10This is short-term trading. "Every two seconds they predicted the average price movement (on OKcoin) over the following 10 seconds. If the price movement was higher than a certain threshold, they bought a Bitcoin; if it was lower than the opposite threshold, they sold one; and if it was in-between, they did nothing." I don't see them allowing for commissions and fees.
OKcoin, at peak, had a trading volume so high that it's generally considered to be fake - the exchange operators manipulating the price. What this group at MIT may have done is reverse-engineered the fake trade generation algorithm.