Spencer Wheatley, Didier Sornette, Tobias Huber, Max Reppen, Robert N. Gantner
arXiv 15 Mar 2018 · Econometrics · 18 citations (OpenAlex)
arXiv:1803.05663 · PDF · DOI · OpenAlex · Extracted main text
We develop a strong diagnostic for bubbles and crashes in bitcoin, by analyzing the coincidence (and its absence) of fundamental and technical indicators. Using a generalized Metcalfe's law based on network properties, a fundamental value is quantified and shown to be heavily exceeded, on at least four occasions, by bubbles that grow and burst. In these bubbles, we detect a universal super-exponential unsustainable growth. We model this universal pattern with the Log-Periodic Power Law Singularity (LPPLS) model, which parsimoniously captures diverse positive feedback phenomena, such as herding and imitation. The LPPLS model is shown to provide an ex-ante warning of market instabilities, quantifying a high crash hazard and probabilistic bracket of the crash time consistent with the actual corrections; although, as always, the precise time and trigger (which straw breaks the camel's back) being exogenous and unpredictable. Looking forward, our analysis identifies a substantial but not unprecedented overvaluation in the price of bitcoin, suggesting many months of volatile sideways bitcoin prices ahead (from the time of writing, March 2018).
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Anders Johansen, Didier Sornette, and Olivier Ledoit (1999) Predicting financial crashes using discrete scale invariance self | 0.811 | 4 | 2 | 100% |
| 2 | Anders Johansen, Olivier Ledoit, and Didier Sornette (2000) Crashes as critical points self | 0.737 | 3 | 2 | 100% |
| 3 | Sara Silverstein (2018) Analyst says 94% of bitcoin's price movement over the past 4 years can be explained by one equation | 0.511 | 2 | 1 | 100% |
| 4 | Didier Sornette, Ryan Woodard, Wanfeng Yan, and Wei-Xing Zhou (2013) Clarifications to questions and criticisms on the Johansen-Ledoit-Sornette financial bubble model self | 0.511 | 2 | 1 | 100% |
| 5 | Ryan Browne (2018) interesting experiment | 0.405 | 1 | 1 | 100% |
| 6 | Peter Cauwels and Didier Sornette (2012) Quis pendit ipsa pretia: Facebook valuation and diagnostic of a bubble based on nonlinear demographic dynamics self | 0.405 | 1 | 1 | 100% |
| 7 | Zalán Forró, Peter Cauwels, and Didier Sornette (2012) When games meet reality: is Zynga overvalued? self | 0.405 | 1 | 1 | 100% |
| 8 | Nikolay Gertchev (2013) The moneyness of bitcoin | 0.405 | 1 | 1 | 100% |
| 9 | Anders Johansen and Didier Sornette (1998) Evidence of discrete scale invariance by canonical averaging self | 0.405 | 1 | 1 | 100% |
| 10 | David Yermack (2015) Is bitcoin a real currency? an economic appraisal | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 38 scored citations.