Bitcoin Trading Agents [pdf]

> Ciaian’s study develops an empirically estimable model of Bitcoin price, which accounts for supply and demand fundamentals, investors’ interest and macroeconomic development (1). p B t = β0 +β1pt +β2yt +β3vt +β4bt +β5at +β6mt +t (1) In this model at time t, p B t is the price of Bitcoin, pt is the general price of goods and services, yt is the size of the Bitcoin economy, vt is the velocity of the bitcoins in circulation, bt is the total stock of bitcoin in circulation, at captures Bitcoins attractiveness to investors, mt captures the global macroeconomic indicators, t is an error term and βi , i = 0, 1, ..., 6 are coefficients which weight each term.

Go ahead and trade bitcoin based on that formula, I dare you:)

It reminds me a bit too much of the drake equation https://en.wikipedia.org/wiki/Drake_equation

or maybe more appropriately this form of the drake equation:

https://xkcd.com/384/

I haven't gone through the referenced paper's but the below also seems a bit dubious..

> Ciaian et al. found a high correlation (corr > 0.8) between the DJIA (Dow Jones Industrial Average) and the total stock of bitcoins and the size of the Bitcoin economy.

How these are so closely correlated eludes me but maybe the reference papers will expand on this.

Having said all of that, the section 5 Factors unique to bitcoin is pretty good. And considering the lack of literature on how to trade bitcoin it's nice to see someone take the time to try and apply some rigor to the subject.

Hat's off to the author.

I haven't spend much time looking at it but the time I have spent show that it does trade differently from a typical currency.

Sadly the Trading Bitcoin section doesn't contain alot of actionable code or information but that hardly makes it unique in the world of trading.

This paper isn't really about trading agents. There's no primary research or analysis. All of the equations, models and graphs are from other papers. In fact, most of this paper consist of summaries of findings from other papers, some of which are somewhat dubious. For example, the paper by Yelowitz and Wilson found positive correlation in Google Trends data for searches for "Bitcoin", "computer science" and "Silk Road" and concluded that "that programmers and criminals are the primary drivers of interest in Bitcoin".

One error jumped out at me. In the conclusion, the author asserts that "the volatility of Bitcoin is correlated with the CBOE VIX" but no evidence is presented to support that assertion. He seems to have misinterpreted one of the findings in the paper by MacDonell that found an inverse correlation between the price of Bitcoin and the VIX.

I'm not impressed.

Edit: Out of curiousity, I checked to see if there is any correlation between Bitcoin price volatility and the VIX from August 2010 to today. There isn't. https://twitter.com/JackGavigan/status/623836628960808960