Dec 25, 2019

Bitcoin In A Year - Analysis Of Reddit Predictions

Every year for the last 7 years user BlackSpidy runs a contest to predict bitcoin price year in advance. More than predicting, the forecasts reveal sentiment and general mood of the forum about bitcoin as I will demonstrate below. While the very first year of the contest started in December 2013 yielded too few predictions, 2014 and on had enough data to be parsed.

2014 was the year of Mt Gox failure, and rumors of bitcoin ban in China, and BTC crashed from 850 to 325, finishing the year around 378 . Reddit readers predicted a median price of 700 for the end of 2015.

2015 was a slow year for BTC, trading between 225 and 350, and finishing the year at 362 . The end of the year rally inspired readers to forecast the median price of 650.

2016 was a bullish year for BTC, when it doubled over year, finishing at 753 . Sentiment was highly positive and readers predicted 1270 for the next year.

2017 was obviously a gear year for bitcoin, when it grew 9x, finishing the year at 10,859 . Excitement about the possibilities was so high that median forecast for the next year was 51,000 and even 1st quintile of the forecasts was over 26,800 . Of course looking back these numbers were never realized, not even close.

2018 was a bearish year, with prices falling to the year end value of 4,165 . Reddit readers were predicting the doubling of the price since the lows for the year end of 8,350, which is not radically far from the 7,200 where we are about now.

Obviously 2019 was a good year for BTC, but the price still has not fully recovered. Oscillations around 10k level were quite wild, and in my opinion inspired more enthusiasm for the currency. Readers are predicting 2020 price of 17,110 , more than 2x of current price.

Given the positive bias of every annual prediction - that is redditors predict 2 times the current price, and about break-even realizations of the forecast, it is hard to make a concrete conclusion. Will bitcoin indeed stabilize above 10k next year, or will the market trade up and down around 10k level?

Whatever your opinion is, I suggest you check out Deribit exchange - currently the most liquid BTC and ETH options market. Merry Christmas and good luck with your trading!

Over the last few years I have been working more and more with NLP (natural language processing), a branch of AI focused on processing of text data, information extraction, figuring out relationships between different entities, etc. If you are interested in working on project processing your proprietary data into signals, or extracting information from public or government publications, send me an email.

Jun 21, 2019

Throw Away Your Skew Model : BTC at 10K

BTC is about to break into 10K territory - or already did on some exchange by the time I finish this post  - the level we have not seen in over a year. As we approach this round number we will observe the usual phenomenon of price clustering around this level, as key psychological level switches from support to resistance.

I typically do not pay significant attention to technical indicators, however this one is really different. Price clustering around key powers of 10 - like hundreds, thousands, or 10 thousands have been observed and well studied. While I do not know how will this impact spot returns, I can certainly say that it will have significant effect on the distribution of prices, and for option traders this means skew.

I expect skew behave quite different than it was before around this level, as trades will primarily focus on the price, as opposed to return / vol covariance, or other skew factors. If you're currently an options market maker - this will get tricky. And if you are a trader of options I expect there will be many interesting opportunities in the coming week or two.

If you're interested in trading BTC or ETH options there is only one exchange that I will recommend - Deribit

Nov 18, 2018

Bitcoin Put Skew

Quick note: after the sharp selloff last week market makers are repricing the downside risk in BTCUSD rate as traded on Deribit. Here are the skews for the first three months that I prepared.

The x axis is put delta, so it is in the same direction as strikes ( I do not know how to reverse axis so the numbers are declining from left to right )

There is a strong bidder for 2500 strike in Dec,  causing the spike in the last chart, but even without it we can see the elevated puts. On the other side, calls showing supply at this time, with largest sizes on the upside Dec calls.

In the meantime, someone on Twitter posted a painting by Ferdinand Hodler "Disillusioned One"

Oct 26, 2018

Volatility Crossover

Equity markets have been particularly volatile this month. Surprisingly, cryptocurrency markets have stagnated with low volatility and low volumes. BTCUSD was range-bound, with most of the last month trading in 6400-6500 range.

This morning tweeted this chart -

showing the crossover of volatilities. This is a strange time for markets; reminds me of 10 years ago, when I was talking with other traders about SPX/VIX crossover, that is is we would see SPY below VIX. These values did happen, although not at the same time ( SPY fell below 70, VIX rose above that about 2 months later ). My recommendation is to trade defensively in this market.