Long Term Update: 2015 Outlook with entropic methods

With the smell of fireworks still lingering in the air i computed the 2015 outlook with entropic methods used in modern finance. The concept of entropic analysis of equity prices is old and it was first proposed by Louis Bachelier in his “theory of speculation”, this thesis anticipated many of the mathematical discoveries made later by Wiener and Markov underlying the importance of these ideas in today’s financial markets. Then in the mid 1940’s we have had the information theory developed by Claude Shannon , theory that is applicable to the analysis and optimization of speculative endeavors and it is exactly what i’ve done just applied to bitcoin/usd ratio, especially using the Shannon Probability or entropy that in terms of information theory, entropy is considered to be a measure of the uncertainty in a message.
To put it intuitively, suppose p=0, at this probability, the event is certain never to occur, and so there is no uncertainty at all, leading to an entropy of 0; at the same time if p=1 the result is again certain, so the entropy is 0 here as well. When p=1/2 or 0.50 the uncertainty is at a maximum or basically there is no information and only noise.

Applying this entropy concept to an equity like a stock or a commodity or even bitcoin itself common values for P are 0.52 that can be interpreted as a slightly persistence or tendency to go up, this means that for example stock markets aren’t totally random and up to some extend they are exploitable, same for btc.
Knowing the entropy level of bitcoin/usd is crucial if we want to compute its main quantitative characteristics, as i explained in the technical background of my blog this process is quickly doable once you have all the formulas.

 BTC/USD  US Stock Market  Gold
Growth Factor G 1.000553 1.000198 1.000120
Shannon Probability P 0.518 0.510 0.508
Root mean square RMS (or volatility factor) 0.056 0.022 0.009

As comparison i included in the above table a commodity and the american stock market, you can quickly see that bitcoin is much better then them in terms of growth, also the entropy is lower (because P is higher) the only negative aspect is the volatility that is much higher nevertheless the growth factor of btc/usd remains pretty high and once volatility decreases it will improve even more.
At this point with those quantitative parameters we can quickly compute a price forecast for 2015 just taking the growth factor G to the power of 365 (365 samples for 1y) and multiplying it for the initial price, at the moment is 315$, so we have:

Target price for 2015 = price * G^365 = 315*1.000553^365=383$ or 26% expected growth, but because of a rampant volatility there will be for sure strong price  fluctuations above and/or below 383$.

 2015 Price forecast  Full volatility  Half volatility
Forecast using only G 383$ 383$
Upper bound adding volatility 1136$ 660$
Lower bound subtracting volatility 130$ 220$

I included in the table also a forecast using an halved value for volatility, it is interesting to see that with reduced volatility i don’t expect to see prices below 220$, a well know support value for who follow regularly my blog and chat, I expect from buyers a strong buying activity in the low 200$ for all 2015 if the opportunity arise.

The price target in case of a new bubble is unchanged and it is the same i was forecasting last year, roughly 3300$ but don’t get excited too quickly:) there is only a chance of 5% to go there in 2015.

As usual i’m available to questions if more explanations are needed or if you want to obtain more details of these computations (formulas used etc..).

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50 thoughts on “Long Term Update: 2015 Outlook with entropic methods

  1. bcmine

    As stated before in several comments, I agree with $135 coming in the 2QU. Good Luck for New Year. Best Wishes to family and friends.

    1. Arthur

      Same bcmine! 🙂

      And thank you again Enky. Looks like we are going to have a repeat of 2010-2011: low prices, not much happening.

    1. it is interesting but i’m skeptic that it’ll hold considering a giant descending triangle on the weekly chart, probably we will have a final bottom sub 200, in any case i’ve an order at 230$

      1. Jay P

        Just wondering,
        have you bought at 230 already or are you still waiting for it to drop to that?
        thanks in advance

  2. Jerry

    One of Bitstamp’s operational wallets was compromised on yesterday. News like that can give an another push for the prices.

  3. Jay P

    Do you still think it will drop to $230 or will it just keep rising from its current price of around $285? or will it drop again?
    Waiting for your reply,
    P.S. You are like a genie in a bottle…you do a great job and are obviously good at what you do. Cheers.

      1. Andre

        Wow …. so you reckon 230 (or less) within the next 3 weeks …. and there might be a chance that we’ll see 130 USD/btc this year as well (or just a hypothetical statement) ? Middle of November we slipped below 400 USD and now we are struggling with 270 USD; does this indicate that we won’t see any rise soon ?

  4. JamesR

    I still holding my coins since the 1000 USD period. I do not need that money right now, but it seems to be that BTC will completely deprecate if I keep holding it. I have not sold my coins at the peak period at last summer but now I start to regret it. What should I do?

    1. george

      Wait if you don’t need money.
      Short if you have nerves to trade.
      Sell off if you’re not willing to trade and can accept huge loss. People will be happy cheap coins.

  5. Mickey

    Enky, please advise us!
    Should I sell or not, my coins are earned, I need to know if I should sell now, I need the money to live on until I close my btc business and move back to a real job, 10$ price drops lose me thousands.

    1. if you can’t couple with the psychological pressure sell all or a part till if you feel more comfortable. If you feel under heavy pressure it is because you are too much exposed in btcs and your nerves are too weak.

  6. JamesR

    I am afraid that prices will not recover and BTC will die a premature death. We are more or less in the range where meaning is not profitable anymore.

    1. it will not die at max there will be a prolonged period of cheap prices, be prepared for sub200$. we were discussing on my chat the other day a possible support at 170$

  7. Jay P

    Hi enky, did you go through with your last order @$230 or are you waiting for the possible further drop to $170?
    or did you buy @$230 and are going to buy more if the price drops even further?

  8. Jay P

    cheers for the heads up and excellent info. i am going to wait a bit longer to see if it drops a little further. have to really keep my eyes on the ball at the moment. thanks again.

  9. Djustin

    I think this could be good for btc. Mass adoption is the goal and in order for it to become a reality we need the price to drop then rebound in a healthy way. It might take awhile but I still believe it will happen. We have seen this doom and gloom before but it’s not going away any time soon. I think I might just be preaching to the choir 😉

  10. Jay P

    so we hit 204. this is amazing! i am still holding off buying yet. i want to see if it goes below 200. good chance it will.

  11. Arthur

    Enky, remember Elwave? If 240 isn’t the bottom, then 80 is. Maybe something to investigate. I’m keeping an eye on that level at least. 🙂

    1. as i said in my update, 130 is the floor. Any weakness below 130 would mean that we are in a serious inverse bubble. A subsequent difficulty drop would be the confirmation that we are in a bear market like it happened in 2011.

    2. Hi Arthur and Enky. Been away from Bitcoin. Put in an order for $160 last night and woke up to an excuted trade. I’m back to trading. Decided get off my lazy arse. How are you guys doing?

      1. Arthur

        Hey Mike! 🙂

        Doing pretty fine in general, but trading wise… Mwoah. It was my goal to own a certain amount of Bitcoins and I’m roughly on 120% if I sell my Maid and Ether for Bitcoins. So far so good, one would think…

        However, with the current Bitcoin price I’m on 60% of my invested dollars… Meaning, a loss of 40%. Ouch. Nothing to party, unfortunately.

        So I’m hoping 2015 and beyond will be better years. I’m in this crypto game long term so a set back (on paper only) in the first one and a half year is not bothering me. I’ve learned about and invested in MaidSafe and Ethereum in the meantime, and I’m quite excited to see them succeed next to Bitcoin. So far those 2 investments are doing quite well, and are partly compensating the Bitcoin losses…

        That’s about it Mike, and what about you?

      2. Hi Arthur,
        I’m glad you found some tools of diversification. I think I’m in the same boat as you. I got all-in at around 400 and for some time things were good. But of course the recent slide or should I say cratering left me rethinking my hold-hold approach. So I sold around 220 sensing we are going down to sub 200 and likely to 160 area, at which point I bought all back. But counting previous losses, I’m also down, around 50%. This 24-hr trading cycle is not easy to time right, especially when you are working. I’ve recently made some big profits in alibaba calls. It was one of those rare opportunities.

        I sold my Bitcoins at around 200 yesterday and bought back at 180 and sold again around 200. This current pop past 200 was a definite possibility and it is good to confirm. I think this is a bear trap. I am betting that it will gradually wind down back toward 160 in the next week or two.

        Happy trading,

        Mike

      3. Mike

        I’m also eyeing crude oil ETFs for shorts while waiting for a bottom call. I think a further slide down to 30 is a real possibility.

    3. i checked today elwave, i’ve 100$ and 140$ as secondary targets for primary and intermediate time frame. Primary targets have already been reached these days.

    4. Arthur

      You beat me to it, I tried Elwave also but found out now I have some error that results are not to be trusted, since it’s an unregistered version… So I’ve arranged a new (second hand) PC to reinstall things. Need to pick it up still though. Anyway, $130 or $140, it’s the same level. I will try to pick up some coins there to average down my $373 cold storage coins and will keep some cash dry for $80 – $100, just in case…

  12. Jay P

    ok guys. quick update. just finished my trading for today. the exchange i use dropped to $168.15usd. i missed that price though because i waited too long thinking it could drop further and it didn’t. my best buy price today was $180.76usd. my avg buy price for today was 236.03usd in 8 trades. keep working hard. good luck everyone.

  13. Simon

    Enky in your analyse you are forgetting the offer and demand ( valid in all markets ) what is the new demand for bitcoin with all the payments process which are developped by Apple , the major retailers in USA and world wide, the micro payment systems , NFC etc there is no more demand from large public for BTC ( they want a secure, reliable , non volatil payment instrument ) so my guess is BTC very low under 2 digits very soon and even lower possibly one digit because if 500.000 or 1.000.000 BTC are sold in one week wat is the price of BTC then ! miners are not in profit anymore and this is an important fact !

    1. I’m not forgetting offer and demand because supply and demand are reflected in to the chart, and the chart always discount everything.
      For the rest stay grounded please, no one is going to sell 1 mln btc at any exchange.
      To conclude, the probability to reach single digit this year (estimating that “very soon”for you is 1 year) is less then 1%, very unlikely to happen but still possible.

    1. They are and they are in line with this update, when possible i’ll publish a new update if you want more updated news follow me on my irc channel at freenode, channel ##btctrading

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