[mrfredward]

Benfords law is used to find evidence that the numbers came from a person, not a measurement or mathematical process, right? So anyone who knows what a limit order is should not be surprised to find evidence that humans are involved in picking the prices, right?

It should be obvious that violating Benfords law isn't evidence of fraud or manipulation or even fomo, just evidence that the price is impacted by the people typing in the orders having to pick what number to type in.

Edit: I've softened the language in my comment a bit, but I stand by the fact that this only shows humans are affecting prices, this analysis can't distinguish between fraud and psychological effects around "key" prices, like $10,000.

[JumpCrisscross]

> If the author had spent 5 seconds thinking about how markets work

The author has spent a career thinking about this, and has written a good fraction of the textbooks on statistics in market contexts.

[mrfredward]

I guess we need to make a distinction between the blog post and the Gary Smith post it links to here.

Gary smith (the person I think you're referring to having spent a career in this) says this:

>The market manipulation, the irrational price gyrations, and the enthusiasm of so many investors for investing in bitcoin (and other cryptocurrencies) is ample evidence that market prices are not invariably equal to intrinsic values.

I entirely agree. A perfectly efficient market should follow Benford's law given enough data.

It's the blog post by Andrew that I think totally misses the point. He leaps from inefficiency which could be market manipulation to this:

>I saw this and I was like, well, yeah, isn’t all bitcoin use either crime or manipulation? But then I realized, no, that’s not all of it. Some bitcoin playas are motivated by politics, some by fomo, some are doing anti-virtue signaling...

And never considers the fact that the world is full of people who feel very different paying $100.00 vs $99.99

[JumpCrisscross]

> the world is full of people who feel very different paying $100.00 vs $99.99

Agree, though that effect is not constrained to Bitcoin. Retail orders, for instance, follow Benford's law. This is despite well-documented psychological biases towards e.g. certain digits, whole numbers, round numbers, et cetera [1]. Benford's law [2] derives from deeper mechanics.

As you point out, however, a better control would have been not all prices in public stocks, but retail orders.

[1] https://mro.massey.ac.nz/bitstream/handle/10179/2695/02_whol...

[2] https://en.wikipedia.org/wiki/Benford's_law#Krieger–Kafri_en...

[mrfredward]

Liquid retail stocks follow Benford's law because there is a notion of intrinsic value from the company and an army of quant traders trying to exploit any price inefficiency caused by the retail traders.

With cryptocurrency, the market is less mature and the intrinsic value largely comes from people believing in its value. So really, it would be surprising if we didn't see some Benford's law anomalies associated with people picking numbers.

Anyway, thanks for the discussion; the links above have given me stuff to chew on and calmed the red mist after I got so many drive-by downvotes.

[UncleMeat]

Benfords law is a perfect example of something that is cool and compelling and then gets applied inappropriately all over the place by people who don’t know better. Voting, for example.

[HWR_14]

> Benfords law is a perfect example of something that is cool and compelling and then gets applied inappropriately all over the place by people who don’t know better.

Yes, but an Ivy-League educated Professor of Economics who created Yale's first course on the stock market under the mentorship of a nobel prize winner (for his work on the stock market) and whose research specialty is statistics and financial markets should be able to use Benford's law correctly.

That this analysis was then repeated by Columbia is also pretty strong credibility.

[snet0]

Usually because the pop-description is, as usual, misleading. People find data covering "several orders of magnitude" and just assume by some cosmic fact that Benford's law should apply, despite the mechanics being their data having no reason to imply that the law holds.

[abaga129]

Or by people who do know better and have malicious intent.

[iratewizard]

This is exactly it. If you look at price changes as bitcoin approaches round numbers, you can see that a significant number of people have their limit price set to something like $10,000. When it would approach those round numbers, it would be stuck just under that number for a while. If the price cracked the round number, meaning all those limits got sold, the price would then slingshot much higher.