Some background for this post (#1433202)
So, I've spent a stupid number of hours this week going back over notes from econometrics classes back in my university days and reading up on certain things. While arcane and technical, discussions of econometric results in economics or finance almost always came down to certain assumptions used in a model — or whether or not you could interpret the results in this or that way. It's much less rigorous than you at first suspect, much more subject to very-subjective interpretation, which is why I enjoyed it so much I think.
Econometric softwares are abundant, (hashtag AI economy, scarcity&abundance etc #1425743, #798342), meaning you can TECHNICALLY ask it to spit out numbers on absolutely anything.
The skill of an academic or data scientist is to understand what it's doing, why you're using which test to run a regression in what way, and CRUCIALLY interpreting the real-world meaningThe skill of an academic or data scientist is to understand what it's doing, why you're using which test to run a regression in what way, and CRUCIALLY interpreting the real-world meaning
So here's my little trouble. There are a ton of Bitcoiners running around with notions of The Power Law in their minds. The Bitcoin Power Law, from Mezinskis' Porkopolis website:
I first published a chart observing how Bitcoin’s price follows a trendline according to a power law in 2018. My thinking was inspired by famous posts on BitcoinTalk authored by Trolololo from 2014. In his early model, he observed Bitcoin’s price fitting to a logarithmic regression.
More examples:
https://www.youtube.com/watch?v=XW1GUeBe0Rs
https://www.youtube.com/watch?v=NaC3zGp6BSo
https://www.youtube.com/watch?v=vjwFusEnfiE&t=6s
- Giovanni Santostasi https://x.com/giovann35084111?s=21
- Fred Krueger https://x.com/dotkrueger?s=21
- Stephen Perrenod https://x.com/moneyordebt?s=21
My immediate observation comes from Fred Krueger and Ben Sigman's book Bitcoin One Million and their very neat associated website https://b1m.io/
- "You don't see relationships like this in financial data. Ever” (p. 7)
- “The mathematical relationship between time and price – the most robust pricing model in financial history – delivered exactly what the equation predicted.” (p. 299)
The devil is always in the details.
So hang on here, you
- took heavily smoothed-out...
- ...price levels...
- ...regressed that on time
- ...in log-log space
- ...which resulted in a stupidly high R-squared (0.997)
...AND YOU THINK YOU'VE DISCOVERED SOMETHING?!...AND YOU THINK YOU'VE DISCOVERED SOMETHING?!
Financial assets and their returns are not normally distributed. R-squares belong to linear regression and thus don't really work/mean anything in log-log space. You've smoothed out all the variation, whereas R-squares report the unexplained variation in a dependent variable. You take the levels of a financial asset, instead of its returns which absolutely every financial practitioner does, falling prey to nonstationary data problems. And you mechanically interpret your insane 0.997 result as evidence.
I dunno, man. The more I look at this, the more I think you can’t regress an asset’s (smoothed-out) level on time in log-log space, and think it means anything.
Poor Taleb would have a hizzyfit and collapse on the spot if he saw this. As would Granger and Newbold if they were still alive
So yeah, plenty of economists and econometrically savvy schtackers around. Happy to take some feedback here since it feels like I'm missing something... why are all these clever/respectable people pushing something that seems like such obvious gunk??
Not sure I follow, Padre...?
Young man, you don't follow for a very simple reason: these men are screwballs
What is Stacker News?
It is a social media platform intentionally created to enable a P2P V4V BTC denominated community.
Originally Stacker News (SN) custodyed sats on behalf of participants but the threat of government regulatory prosecution on the pretext of money transmitter forced a move away from the custody of sats by the platform to the platform enabling participants to send sats via their wallets.
To achieve this participants need to attach wallets to both send and receive sats.
Where participants do not or cannot attach LN wallets transactions will often default to Cowboy Credits.
This change was a compromise forced by the threat of government prosecution.
The difficulty of attaching both sending and receiving wallets is moderate- it takes some effort and newbie or non tech people may struggle with it, but most competent Bitcoiners can succeed in attaching wallets and thus enabling sats denominated P2P transactions.
But a number of Stackers have chosen not to attach wallets- in particular sending wallets which enable you to send sats into the SN community.
Very few who have attached just a sending wallet- many have attach just a receiving wallet.
Those who only attach a receiving wallet can receive sats from others but cannot send sats into the community. They may feel that as content providers they have no need or obligation to send sats into and within the SN community. I disagree.
Where these receive but not send (horse but no gun) Stackers proclaim to be Bitcoiners but refuse to enable a sending wallet they are demonstrably hypocrits. They claim they want to build and grow the BTC LN MoE network but they cannot be bothered contributing toward that growth by attaching a sending wallet and demonstrating they are not just talking, but are also walking and supporting a sats denominated platform.
If we do not use the LN wherever and whenever we can it will not grow and develop.
Some claim it is too hard to attach wallets- its too hard on their self custody nodes or wallets- this just highlights how muich work the LN needs before it is capable of anything approaching reliable MoE capability.
The best way to grow and strengthen the LN is it use it – despite its remaining flaws and glitches.
When wallets are supported by people using them they receives transaction fees and can develop liquidity and systems further.
When LN wallets are not used the LN decays- it does not have the usage and fees income to grow.
So when self proclaimed advocates for BTC and LN refuse to attach wallets (especially sending wallets) I see hypocrit.
I will continue to see hypocrit until and unless someone can explain why I should not.
Calling me a Nazi, trolling and making fun of me crudely seeking to avoid the issues I raise will not stop me from asking why are you claiming to be a Bitcoiner but refusing to attach wallets and use the LN here where we can help it grow.
Now some are deliberately concealing their wallet status, as if this is about a right to privacy.
Concealing your wallet status means nobody else can verify whether or not you are serious about using BTC LN, or whether you are just an all talk no walk hypocrit.
Do not trust- verify.
What about this fundamental principle do they not understand?
And then they talk about 'content' being more important than whether or not you have attached wallets - in this context the intentional lack of attached wallets undermines your credibility as your actions do not match your words.
Your submitted content may be great, but you as someone claiming to be a serious Bitcoiner are undermining your credibility and the credibility of your content by being a hypocrit.
Your content, is tainted by your verifiable hypocrisy.
SNs needs both good content providers and those who pay for that content if it is succeed.
I am more in the latter group than the former but both are required overall or the model does not work.
So as a net contributor of sats and thus a net consumer of content I object where content providers refuse to engage in the P2P V4V ethos by refusing to attach both sending and receiving wallets and I will both withhold my contribution of sats and sometimes downvote in response.
V4V needs to work reciprocally or it will not work at all.
The content providers need net sats contributors/content consumers who send sats into the platform, or the entire platform fails.
Yeah, any model based on a simple time series is inherently flawed.
How can one construct a model when the unit of account ($) isn't a constant? This is particularly relevant for the 2020-21 era stimulus which saw 20-30% inflation across many assets.
How can you say that the model is useful if the predicted ranges are so large? For example, this model implies a current BTC price of anywhere between $52k and $528k:
https://charts.bitbo.io/long-term-power-law/
How can it possibly account for macro-scale events which aren't guaranteed to happen but completely change the price behavior of the asset (ETF approvals, MSTR, etc.)?
But to answer your question,
A few takes:
The truth is, even most highly respectable/smart people do not have a deep understanding of econometric modeling.
The subset of people who actually understand the math behind the models is extremely tiny. Including among people who have Masters in Econ/Finance. IMO learning it in a class, even getting an A in the class, is not really enough. Because the classes just teach you how to use the models, but you don't really spend time tinkering with the underlying assumptions or thinking too hard about what falsifies the models.
It kinda takes years of tinkering in the depths of the math, trying to build your own models, answering objections to them by other people, that builds your ability to deeply understand the models. Usually the only people who ever do that are people in PhD programs.
Guess that made me a bad student, then?? I basically did the opposite, focused on figuring out what was happening and the assumption, specify model etc, and then the exact commands in Stata later.
Quite a few of these people are PhDs, e.g. the physicist Giovanni-something. They usually have an astonishing grasp of math
No, that makes you a good student. Thinking about the underlying assumptions is what differentiates an "economist" from a "technician". When we were hiring for new faculty positions, sometimes people would say of a fresh grad, "That guy's just a technician," referencing the idea that they were good with the math, but they weren't thinking carefully about the underlying economics.
I remember sitting in ecmt labs with people just discussing with the TA or professor "what's the command for that? Do we have a test for that?" Having no idea what they were investigating or actually doing
Basically memorizing, if problem, then run y command
Indeed. That's 90% of students. Even the good ones.
Ah, yeah, another common problem with people who are good at math from other fields trying to comment on economics. Econometric theory isn't just math. It's a close connection between math, the underlying economics, and how your assumptions tie the underlying economics to the math. I find that people coming from a physics/engineering background often fail to grasp that. Because they are used to modeling physical systems where the underlying assumptions are natural law and (afaict) 100% accurate to how the world behaves. Not so for economics/finance.
As someone with both a physics and econ background, I like to offend physicists by saying econ is harder than physics. (Because of the assumptions issue, but also because of some self-referentiality in what we do. How people think about econ actually affects how the economy behaves. But how we think about physics doesn't affect how nature behaves.)
And yet with all your education you cannot seem to manage to attach a LN wallet and engage in the P2P V4V sats denominated ethos of Stacker News.
Just another big talk no walk hypocrit.
hheeeeehe, yeah that's definitely how you annoy the kings of the "hard" sciences :) wishy-washy economics be harder
All models are flawed. Some models are useful.
All very good explanations for what's going on, thank you
This is the part I'm most likely to disagree with. Did they actually test that against the price history of other assets?
I have a strong suspicion that you can find many 10-year windows of asset prices in which the log-log relationship between price and time is roughly linear with a high R2
I did some quick rudimentary check on the s&p, got 0.95-range. that's what first got me suspicious of this whole thing...
( But then again, low confidence that I did it well)
Sometimes you observe the empirical regularity before you understand its reason.
I don’t see any inherent reason why using log prices is inappropriate or why you can’t use R-squared, it’s just that you’re explaining the variation in the log-prices.
Mmm, noo? By compressing it, first by MA and then by log, you're stripping it of variation. So I suspect you get this stupidly high r-squared result pretty artificially
It just goes to your point about interpretation. Provided the variable is described accurately, the amount of variation explained is whatever it is and you can note that it’s not particularly impressive because of how the variable was constructed.
To me, it’s not very important because the relationship passes the eye test so dramatically.
Someone predicted the power law trend almost a decade ago and it’s largely held.
Fine, it works in practice but does it work in theory?!
If it works in practice, then it inherently works in theory...we just have to figure out what that theory is.
Mae, I was paraphrasing Bernanke on QE. Thought I'd get brownie points for that one
Fred Krueger is Stanford PhD, or so he likes to tell anyone who didn't ask.
He must know what he's talking about.
/s
(never seen a bigger bitcoin grifter than him on Twitter)
That is the unjustified, arrogant, stuck-up impression I'm getting :/
Perfect model
1 sat = 1 sat
Checks out
Aaaamazing. Where my retard gif?!