Parker's Psions

It's humid. It's been raining all day and I can feel it on my skin. My hair is longer than it should be which makes the humidity worse. But a breeze comes and goes, it helps, but makes my cigarillos burn too hot and bitter. A pity since they're otherwise a very sweet tobacco. It's probably just as much my fault, I always puff on these things way too hard. It's for the best I only smoke a few times a year. These ones come individually wrapped and with plastic tips. I hate plastic, so spend a minute removing each one, wiggling each tip back and forth so as to not tear the tobacco as I start my third.

On the way here I stepped on a snail, several actually, all clustered by my front door. I didn't mean to and didn't see them, but the crunch made it obvious. Some were only half crushed. I don't know if snails can feel pain, but I don't like it when animals needlessly suffer, so I stomped on them several times until I was sure they were completely dead. It upset me as I like snails, but at least there's no shortage of them.

The breeze is gone, replaced by the sun as the last of today's storm retreats downstream. It would be nice to sit here the rest of the day, smoking and watching the river go by. But it's the last day of my vacation and I want to finish editing an audiobook before the day is over.

#journal

For the last couple days I've been trying Nostr, a fairly new protocol for decentralized social media. It exhibits some improvements over the fediverse, such as user identities being represented by public keys rather than tied to a single server, or the underlying protocol being easier to develop on than ActivityPub. However, a catastropic flaw is the integrated tipping system, zaps, wherein one person can tip another Bitcoin via the Lightning Network.

One of the worst problems of social media is the gameification of social interactions. With Reddit for example, people aren't incentivized to say what they really think, but what they (at least subconsciously) think will gain them the most upvotes. The end result being a hive-mind where all posts and interactions degenerate towards the lowest common denominator. Nostr's zaps are like that, but with money in addition to the endorphin rush. They're Reddit gold on steroids. Their effect is already widespread with users begging for money, openly admitting they love the endorphin rush, that they're addicted to zaps, and mindlessly parroting pro-Bitcoin slogans while avoiding any form of critical discussion. So while Nostr itself it a technically interesting platform, the social incentives and resulting user-base are terrible.

^{Originally published 2023/02/28}

The power law has provided a simple and accurate model of Bitcoin prices to date. In essence, it states that price growth is exponential as a function of log-time. Put more simply, every 1% increase in time (measured in days) is followed by a similar X% increase in Bitcoin's price. This relationship can be written as the following formula:

ln(Price) = β0 + ln(Time) × β1

Where β₀ and β₁ are the intercept and slope of the price formula. Rewriting this formula as a power law gives the following relationship:

Price = eβ0 × Timeβ1

While this log-log relationship between price and time has been previously discussed, it is worth updating with recent data. In particular, the $69k high in November, 2021 fell short of the $100k expectations produced by the immensely popular stock-to-flow model, while the subsequent price crash has been less severe than previous cycles. Consequently, it is worth measuring this decline in volatility as Bitcoin becomes a mainstream investment.

The above model was applied to daily closing prices from July 18, 2010 to May 15, 2022 via linear regression. It is worth noting that time (measured in days) is an arbitrary convention, as there is no day one, no particular date the price of Bitcoin started following a power law. Therefore, the value corresponding to July 18, 2010 was varied to produce the best model fit, with a starting value of 448 being chosen. In order to assess to what extent price volatility has decreased over time, a trading strategy was generated using two additional “buy” and “sell” lines. The slopes and intercepts of these lines were fit to produce the greatest ROI to date (in USD terms) for a trader that only bought or sold Bitcoin whenever these targets were met.

This analysis is depicted above with the an r-squared of 0.9507, meaning the power law accounts for 95% of the variance in log-prices. β0 and β1 were -36.1743 and 5.5058 respectively, indicating that for every 1% increase in time, the price of Bitcoin increased 5.5%. For the optimal buy line β₀ = -36.8846 and β₁ = 5.5046, indicating that growth in the price floor has been nearly identical to our regression model. However, for the optimal sell line β₀ = -26.2872 and β₁ = 4.4549, indicating that volatility to the upside has declined over time. Overall, trading according these price targets would provide an approximately 434% annualized return since July 18, 2010.

#crypto

^{Originally published 2022/05/18}