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by DigitalJack 4574 days ago
Sometimes a precipitous event happens and we can say that event was for certain the cause of something going up or down on price.

Most of the time I think there are just too many variables to so confidently point to one as the cause.

So when I hear on the radio that the Dow went down because of xyz I just chuckle. If we were really so good at pinpointing cause and effect in the markets, the people doing so would shut up and make money.
4 comments
dopamean 4574 days ago
While I generally agree with what you've said here I don't think it applies as much to bitcoin. The DJIA is huge and there are many, many, many factors that can affect it's movement. Bitcoin is tiny in comparison with a very illiquid (is that a word?) market. I think many people had attributed the huge runup in price to activity in China so it is no surprise that bad news in China would have this effect.

Basically I think it is reasonable to assume that this news is the reason for the decline.

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yen223 4574 days ago
"Bitcoin is tiny in comparison with a very illiquid (is that a word?) market. "

The idea of Bitcoin being illiquid strikes me as being quite ironic.

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avn2109 4574 days ago
Liquidity != Volatility. There are many cases when it's hard to turn BTC into $US/Danish Pastries/Gold Bars; this makes it illiquid. Try getting your money out of MT Gox.
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yen223 4574 days ago
The irony is that Bitcoin is supposed to be a replacement for cash. Technically, it should be the most liquid thing out there.
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dopamean 4573 days ago
I got what you're saying and I totally agree. I think the problems with liquidity contribute heavily to the volatility as well.
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Dylan16807 4574 days ago
>If we were really so good at pinpointing cause and effect in the markets, the people doing so would shut up and make money.

It's far easier to find causes than to predict details. For example, you know the numbers on some companies are going to be released at exactly 2:00pm, and then at 2:00pm related stocks move twice as much as they had in the previous week. You can't profit off of "80% chance of moving strongly up or down at this specific time", but you can make highly accurate claims about causes.

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gwern 4574 days ago
> You can't profit off of "80% chance of moving strongly up or down at this specific time"

Sure you can, you buy a set of options which pay off if it moves high or low enough. The reason you can't, in practice, profit is that such opportunities will tend to have already been priced into the cost of those options. But not because there's no such thing as a strategy to profit off of volatility!

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natrius 4574 days ago
It's hard to pinpoint the causes of trends across an index, but it's easy to pinpoint the cause of a commodity's price changing.
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fit2rule 4574 days ago
In fact, 'the people doing so' are making money. So there is that.

And then, there is the fact that you can make money off people coming late to the market. This is an old trick.

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