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Bitcoin's price follows a random walk - and that's fine! A thread: 
Over the last couple of days, I've seen a lot of confusion regarding the empirical review of @100trillionUSD's S2F model by @Kripfganz at the last @ValueOfBitcoin. 1/9
Over the last couple of days, I've seen a lot of confusion regarding the empirical review of @100trillionUSD's S2F model by @Kripfganz at the last @ValueOfBitcoin. 1/9
Sebastian's key result was that - after meticously disecting (see pic) the statistical model in deterministic effects, a potential long-run relationship and short-term elements - that he couldn't identify an equilibirum relationship between the S2F ratio & the Bitcoin price. 2/9
If you don't account for all deterministic elements (the step function of the rewards - 50, ... 6.25 - is such a deterministic trend), the results of cointegration tests are not meaningful. If you're interested in that, watch out for a forthcoming piece by @BurgerCryptoAM 3/9
Sebastian concluded that the most appropriate model (based on the data) for Bitcoin's price is a random walk (RW) with drift. Let's clarify what a RW with drift implies by showing what it DOES NOT mean. 4/9
It doesn't mean that there are no fundamental drivers of BTC's price - whether BTC related (Satoshi's disappearing, social attacks such as BCash, node count, lightning or halvings) or with respect to the general macro and political environment (QE infinity or regulation). 5/9
Using a random walk model for Bitcoin doesn't mean leaving the realm of human action and falling into the world of molecular motion. It just means that price swings such as in March can't be predicted (on a consistent basis). 6/9
This doesn't mean that you can't form your own assessment of Bitcoin being under- or overvalued (using praxeology, see the talk "The last money": ). It just precludes the view of a mechanical/high certainty relationship between a driver and BTC's price. 7/9
And: It doesn't mean that everything that happened since 2009 were fleeting coincidences. The whole point of a RW is that all the little random shocks add up & have a lasting impact (pic). Also: The (positive) drift can be seen as a constant adoption / Lindy effect over time. 8/9
Bitcoin developed over time to become a monetary, social, and (a-) political construct that can neither easily be put in existing mental boxes nor in statistical models. 9/9
