Comparing price predictions to reality

Comparing cryptocurrency price predictions to reality

The popularity of articles predicting cryptocurrency prices is quite unseemly, considering the overall success rate of the predictions and the basis from which they are derived.

Said basis is usually the past i.e. the manifestation of previous cryptocurrency speculation. This is by no means a reliable footing out of which actionable and dependable price predictions can stem. Even in the world of stock markets, where prices are more influenced by company operations as opposed to speculation, predictions are still not more reliable than a chimpanzee throwing darts.

While there are many other studies showing other animals beating “experts” in stock market performance, we won’t delve into the details of that. The unreliability of most predictions, as obvious as it might be to anyone with second grade math skills, does not at all mean that all predictions are bad and should be ignored.

It is usually the basis and angle of a prediction that makes it unreliable and, in many cases, laughable. However, it is much more marketable to speculate on ridiculous fantasies, than to be rooted in realistic scenarios.

This is confirmed by the monthly, weekly, and, in some cases, daily price prediction articles posted on almost all crypto news sites. One does not have to look for long to identify the random hit-and-miss nature of these predictions.

While short-term forecasts tend to have a better chance of luckily manifesting into reality, long-term predictions is where the real fun begins. Some of the most outrageous, and non-coincidentally, most covered predictions are the ones that project a future only people ignorant of the complex and heavily luck dependent essence of markets believe in.

In part, this speculation hunger is still principally driven by the belief in astronomical returns, fueled by “success” stories of the lucky few who banked on the 2017 crypto bubble. I’m sure some of them were skillful traders, but really skillful traders are well-aware of their inescapable dependence on luck.

Reliable price predictions

If price predictions are to be reliable, at least on some level, they need to be rooted in realistic scenarios e.g. if the Ethereum 2.0 update is fully successful and works as described, then this could potentially result in this, this, and this.

Of course, this is an extremely simplified example, but it makes the point. The price prediction, usually therein in a detailed prediction scenario, will be backed by a very specific chain of events. Not fully reliable still, this kind of prediction is superior to the current “model” that is used in crypto.

Markets in any niche are heavily dependent on an extremely complex set of parameters, where the slightest change in one results in a completely unpredictable outcome of the system. Thus people thinking that they can accurately predict market behavior are no different than the ignorant climatologists prior to the work of Edward Lorenz, which later became popular as the butterfly effect in his famous speech from 1972.

This sensitivity of complex systems to slight changes in initial state (chaos theory) is why all these market “experts” seem to be right only in the retrospective analysis of their failures. And yet, the countless economic predictions continue to create buzz, despite their horrific success rate.

Absurdity and marketing

Moving forward, the immature cryptocurrency market will need to evolve from an almost purely speculation-based investment instrument to one similar to the relatively mature stock markets. An intrinsic part of this process will surely be the imminent change in the average crypto investor mindset.

As the corpses keep piling up, resulting from the 2018 bear market, more people will inevitably incorporate a conservative component into their investment strategy. While absurd predictions such John McAfee thinking Bitcoin will be $1,000,000 by the end of 2020 might have moved the masses 2 years ago, they are now slowly but surely becoming the laughing stock of an entire community – and for a reason.

Impossible as this prediction might seem, the correct term is still improbable, although arbitrary assumptions like that are as close as we can get to a probability chance of zero. Knowing that, it becomes quite obvious to anyone that these types of predictions are nothing more than a marketing strategy, solely aimed at generating massive media attention through sheer shock.

The intricate balance between people doing their due diligence before investing and people failing to recognize the absurdity of too-good-to-be-true predictions in pursuit of quick turnovers seems to be at the forefront of what will define the immediate future of cryptocurrency markets.