Bitcoin price prediction 2013

Perhaps you have noticed bitcoin has taken a dive in recent weeks. The question on everybody’s mind must then be “gosh, is this normal? From a historical context, is bitcoin OK?”

If we disregard all real world facts (which show the bitcoin network IS healthy, and the transaction malleability doesn’t represent any fundamental failure, much less a new risk to the network) and if we just stick to data, and math… my humble opinion would be “this behavior is nothing out of the ordinary for bitcoin; we are seeing a price fluctuation very typical of historical data.”

I have constructed a log plot and fitted to two parameters, as I have done before, just to demonstrate that since bitcoin grows in powers of 10, (seemingly large) contemporary fluctuations may look alarming. This rests on the observation I and perhaps a few others have made, that the bitcoin price follows a log linear growth model, on average, according to what we may expect from the diffusion equation.

In the following chart, the blue dots represent base 10 logarithm of the price data since September 13, 2011. The orange line is the best fit line, allowing the price on day (1) to float and be fitted. The vertical axis is the base ten log of the price, so you can get the price meant for vertical value “3″ by computing 10^3 = 1, 000 (all in USD).

You can use my sheets to perform other types of fits if you wish to choose a particular value for the price on a particular day, or if feeling frisky, try to extract periodic trends.

By taking the exponential of the log fit, we can “predict the bitcoin price into the future.” Note: This does not really work. But it’s interesting. I decided to take the fit out to 1 year from today – what does the log linear fit say the price will be then, on February 20, 2015? For this we must look to day 1258 (that’s 893 + 365)…and the result is about 5 grand (the prediction is $4, 943.89

Just for fun, here is the log of the price with all axes blacked out and no trendline so you can see the raw (log) data for what it is.