Are Bitcoin bubbles predictable? Combining a generalized Metcalfe’s Law and the Log-Periodic Power Law Singularity model
We develop a strong diagnostic for bubbles and crashes in Bitcoin, by analysing the coincidence (and its absence) of fundamental and technical indicators. Using a generalized Metcalfe’s Law based on network properties, a fundamental value is quantified and shown to be heavily exceeded, on at least f...
| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
| Published: |
The Royal Society
2019-06-01
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| Series: | Royal Society Open Science |
| Subjects: | |
| Online Access: | https://royalsocietypublishing.org/doi/pdf/10.1098/rsos.180538 |
| _version_ | 1818383833197707264 |
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| author | Spencer Wheatley Didier Sornette Tobias Huber Max Reppen Robert N. Gantner |
| author_facet | Spencer Wheatley Didier Sornette Tobias Huber Max Reppen Robert N. Gantner |
| author_sort | Spencer Wheatley |
| collection | DOAJ |
| description | We develop a strong diagnostic for bubbles and crashes in Bitcoin, by analysing the coincidence (and its absence) of fundamental and technical indicators. Using a generalized Metcalfe’s Law based on network properties, a fundamental value is quantified and shown to be heavily exceeded, on at least four occasions, by bubbles that grow and burst. In these bubbles, we detect a universal super-exponential unsustainable growth. We model this universal pattern with the Log-Periodic Power Law Singularity (LPPLS) model, which parsimoniously captures diverse positive feedback phenomena, such as herding and imitation. The LPPLS model is shown to provide an ex ante warning of market instabilities, quantifying a high crash hazard and probabilistic bracket of the crash time consistent with the actual corrections; although, as always, the precise time and trigger (which straw breaks the camel’s back) is exogenous and unpredictable. Looking forward, our analysis identifies a substantial but not unprecedented overvaluation in the price of Bitcoin, suggesting many months of volatile sideways Bitcoin prices ahead (from the time of writing, March 2018). |
| first_indexed | 2024-12-14T03:12:39Z |
| format | Article |
| id | doaj.art-06488f79caad4d42a738a45cd0910759 |
| institution | Directory Open Access Journal |
| issn | 2054-5703 |
| language | English |
| last_indexed | 2024-12-14T03:12:39Z |
| publishDate | 2019-06-01 |
| publisher | The Royal Society |
| record_format | Article |
| series | Royal Society Open Science |
| spelling | doaj.art-06488f79caad4d42a738a45cd09107592022-12-21T23:19:13ZengThe Royal SocietyRoyal Society Open Science2054-57032019-06-016610.1098/rsos.180538180538Are Bitcoin bubbles predictable? Combining a generalized Metcalfe’s Law and the Log-Periodic Power Law Singularity modelSpencer WheatleyDidier SornetteTobias HuberMax ReppenRobert N. GantnerWe develop a strong diagnostic for bubbles and crashes in Bitcoin, by analysing the coincidence (and its absence) of fundamental and technical indicators. Using a generalized Metcalfe’s Law based on network properties, a fundamental value is quantified and shown to be heavily exceeded, on at least four occasions, by bubbles that grow and burst. In these bubbles, we detect a universal super-exponential unsustainable growth. We model this universal pattern with the Log-Periodic Power Law Singularity (LPPLS) model, which parsimoniously captures diverse positive feedback phenomena, such as herding and imitation. The LPPLS model is shown to provide an ex ante warning of market instabilities, quantifying a high crash hazard and probabilistic bracket of the crash time consistent with the actual corrections; although, as always, the precise time and trigger (which straw breaks the camel’s back) is exogenous and unpredictable. Looking forward, our analysis identifies a substantial but not unprecedented overvaluation in the price of Bitcoin, suggesting many months of volatile sideways Bitcoin prices ahead (from the time of writing, March 2018).https://royalsocietypublishing.org/doi/pdf/10.1098/rsos.180538bitcoinbubblepredictionmetcalfe’s lawlog-periodic power law singularity |
| spellingShingle | Spencer Wheatley Didier Sornette Tobias Huber Max Reppen Robert N. Gantner Are Bitcoin bubbles predictable? Combining a generalized Metcalfe’s Law and the Log-Periodic Power Law Singularity model Royal Society Open Science bitcoin bubble prediction metcalfe’s law log-periodic power law singularity |
| title | Are Bitcoin bubbles predictable? Combining a generalized Metcalfe’s Law and the Log-Periodic Power Law Singularity model |
| title_full | Are Bitcoin bubbles predictable? Combining a generalized Metcalfe’s Law and the Log-Periodic Power Law Singularity model |
| title_fullStr | Are Bitcoin bubbles predictable? Combining a generalized Metcalfe’s Law and the Log-Periodic Power Law Singularity model |
| title_full_unstemmed | Are Bitcoin bubbles predictable? Combining a generalized Metcalfe’s Law and the Log-Periodic Power Law Singularity model |
| title_short | Are Bitcoin bubbles predictable? Combining a generalized Metcalfe’s Law and the Log-Periodic Power Law Singularity model |
| title_sort | are bitcoin bubbles predictable combining a generalized metcalfe s law and the log periodic power law singularity model |
| topic | bitcoin bubble prediction metcalfe’s law log-periodic power law singularity |
| url | https://royalsocietypublishing.org/doi/pdf/10.1098/rsos.180538 |
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