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Bitcoin Buzz: How Does It Actually Affect the Price?

The following is an article about cryptocurrencies that I wrote back in February, intended for Mattermark. Right around the same time, Inc. hired me and my editor Alex Wilhelm left Mattermark, so the story got swallowed in the upheaval. I think it’s a decent fit for Exolymph, although the tone is much more impersonal and newsy than my usual dispatches. Anyway, I hope you enjoy this or find it thought-provoking.


Let’s say there’s a cryptocurrency called ExampleCoin, abbreviated as EXC. What would you expect to happen when stories about EXC are published in Coinbase and the mainstream financial press? You might say it depends on the tenor of the stories — are they positive or negative? That should determine how the publicity affects EXC’s price. Or you might say that raising awareness of EXC will be good for the price regardless, because some people who didn’t know it existed will find out, or some people who weren’t paying attention will start.

The influence that media attention has on real cryptocurrencies is less straightforward, regardless of which EXC hypothesis you find most convincing, according to a recent study of five cryptocurrencies. Authors Jean-Philippe Vergne and Sha Wang are associated with the Ivey Business School and economics department at Ontario’s Western University, respectively. Their research was supported by the Scotiabank Digital Banking Lab. Vergne and Wang suggest that media hype may depress the price of Bitcoin and the four other cryptocurrencies they examined.

The researchers explain, “While it has often been assumed that greater visibility in the public sphere, including in the media, would create a buzz affecting cryptocurrency prices positively, our models do not support this idea. To the contrary, we find that a one [standard deviation] increase in public interest […] corresponds to a 10% decrease in returns” (the term “public interest” is quantified in the study). This finding emerged when the researchers controlled for other variables, namely supply growth and liquidity, in an attempt to isolate the effect of media attention. Furthermore, Vergne and Shaw write, “[W]e do not find any evidence that bad press affects price.”

By contrast, Vergne and Wang found that ongoing technological development positively correlates with cryptocurrency returns. The authors hypothesize that greater security, new features, and evidence of a robust technical community that will continue to add to both, are the factors that actually increase the expected practical value of a given cryptocurrency — and thus drive up its price. Vergne and Wang summarize thus:

[T]he innovation potential embedded in technological upgrades is the most important factor associated (positively) with cryptocurrency returns. By contrast, we find that, after controlling for a variety of factors, such as supply growth and liquidity, the buzz surrounding cryptocurrencies is negatively associated with weekly returns.

In a phone interview, Jean-Philippe Vergne pointed out that it doesn’t make sense to expect a cryptocurrency to be valued in the same way as a fiat currency or a commodity like gold. What the US dollar does, in a concrete sense, hasn’t changed in a very long time, and there’s no reason to expect the dollar to develop more “features,” so to speak. Similarly, gold is gold — we can figure out new ways to use it as a material, but the substance itself remains the same. Not so with cryptocurrencies, the structural capabilities of which are always being extended by dedicated development teams.

Vergne acknowledged that this paradigm would lead us to predict that newer cryptocurrencies, with innovative technical approaches and new features, will eventually outpace Bitcoin. He pointed to Ethereum’s trajectory as an example. “People were saying, ‘Okay, in a few months the price of Ethereum will be higher than the price of Bitcoin,’ in terms of the total market cap. A lot of people started to believe that Bitcoin was dead and Ethereum was gonna be the new Bitcoin. Because of its more advanced technology team, it had more potential for future improvement.”

But then a high-profile project called The DAO got hacked, exposing Ethereum’s fundamental technical weaknesses, and the dream came crashing down. (It took a year for Ethereum to reclaim the highs it climbed to in early 2016, which it has now exceeded.) “The code underlying Ethereum was so complex that it had many more flaws than what people imagined, and it was not ready yet for large-scale implementation,” Vergne explained.

Presumably a new cryptocurrency that can excite investors and prove out its potential will not be subject to the same boom-bust oscillation, although Bitcoin’s first-mover advantage is formidable. Bitcoin has the largest number of miners and developers, providing improved cybersecurity and greater liquidity. Its name recognition also far-and-away outstrips the competitors. Up-and-coming cryptocurrencies will be hard-pressed to battle that reputation.

Tony Arcieri, a software engineer at the blockchain network company Chain, discussed the study via Twitter DM. He hopes that Bitcoin and blockchain buzzwords “are past the peak of the media hype cycle.” If so, “true technical merit should hopefully start dominating the reasoning and conversation.” Arcieri emphasized that Bitcoin’s stability, both technically and as a community, will be key to its longterm success, alluding to recent contention over a large technical update.

Joon Ian Wong, a reporter for Quartz who formerly worked at Coinbase, was a little more skeptical of Vergne and Wang’s conclusions. “I think it is accurate to say technical developments increase the value of a crypto in the long run — but its price is still driven by speculators, and media buzz plays a big part in that,” he said in an email.

“It’s analogous to the fundamentals of say a publicly traded company. Ultimately if a company has for instance a strong balance sheet, good cash flows, and strict cost controls of course it’s worth more in the long run. But its stock price is still determined by the vagaries of market rumours, trends among hedge fund managers, and the news cycle.”

In their paper, Vergne and Wang propose that the perception that publicity encourages speculators may actually be what drives reduced returns, writing, “[A] sudden increase in the ‘buzz’ surrounding a cryptocurrency could be interpreted as a signal of increasing volatility. If market participants are risk-averse, given the same expected mean returns, they would be less willing to hold the cryptocurrency if future volatility increases, which would drive prices down and affect returns negatively.”

Angel List partner Parker Thompson remarked on the state of various non-Bitcoin blockchain projects, such as Ethereum and Zcash, “These use cases are still very speculative, and these projects don’t have the maturity of Bitcoin, but my belief is that the market cap of BTC is small enough that it could be wiped out in six months by a true consumer-facing killer app built on top of one of the blockchains I mentioned, or one that does not yet exist.”

Gwern Branwen, an eclectic researcher who has studied Bitcoin in the past, was unimpressed by Vergne and Wang’s study. Branwen responded to a request for comment via Reddit comment:

[T]o sum up my problems with this analysis, the big ones are that it uses an unrepresentative and redundant set of cryptocurrencies, over a short and unrepresentative time period, to investigate a model which ignores all feedbacks and interactions between variables and returns […] to make causal claims which are not and cannot be supported by the model and data, in support of an interpretation […] which lack[s] any face validity[.] Maybe buzz and hype and the media matter a lot less than most people think to Bitcoin’s growth. But this paper doesn’t affect my beliefs on the matter one bit.

Regardless of whether you agree with how Vergne and Wang have manipulated and interpreted the data, it’s important to remember that Bitcoin and its ilk are in fact technologies. Cryptocurrencies resemble standard money — “currency” is right there in the name! — but there’s a lot going on in the code itself, and the community developing that code, that influences how the market will behave.


Header photo by BTC Keychain.

The Staid Side of Money

I interviewed my Twitter friend Marc Hochstein, who is the editor-in-chief at American Banker, about finance and technology. (He didn’t speak with me in a professional capacity, but I think his workplace is helpful context.)

Hochstein started his career as a wire service reporter at Dow Jones. He called it a “character-building experience” that involved a lot of cold-calling day traders. The upshot is that Hochstein has been reporting on banks and finance for decades, so his perspective on recent industry developments is interesting.

(Why you should care about this: Our world runs on money. The financial-services industry is hyper-entwined with government, and together they’re the base-level system that everything else is built on top of. That’s actually a simplification since “everything else” and “finance” developed concurrently, but you get the idea.)

I think this quote sums up a lot:

In the last two years — maybe three or four years — there’s been a lot more interest in technology as a potentially transformational force, than there has been in a very long time. You could argue that banking was always, in a way, a technological industry, or always a data industry. There’s a quote from Walter Wriston, who was the chairman of Citicorp back in the ’80s and ’90s. I forget the exact verbatim quote, but it’s something like, “A bank is nothing but a data warehouse, that’s always what it’s been.”

But the banks — financial institutions in general — have been slow to upgrade their core technology, and for some understandable reasons. Changing the core of the bank is a hard thing to do. […] When times are good, when they’re making a lot of money, there’s no real impetus to change anything. And then when times are bad, they don’t have the resources to do anything. Or resources are scarce, I should say.

Hochstein pointed out that the “Uber narrative” hasn’t played out in finance like it has in other industries. He told me, “The barriers to entry are higher. The stakes are higher, because you’re talking about people’s money.” Fintech startups can’t afford to beg forgiveness instead of asking permission. Regulators don’t take kindly to that, and users don’t either.

Technology hasn’t shaken up finance as much as people in Silicon Valley might have expected. Over the last few years, Hochstein explained, “The rhetoric changed from ‘fintech is going to eat the banks’ lunch’ to ‘fintech is going to make banking better at what they do’.” Still, “it’s a little early to say” whether fintech is actually improving banking, or what the degree of change will be. “I wouldn’t say it’s been a profound effect, but it’s there.”

On the bright side, “Transferring money is slowly getting faster.” The Automated Clearing House is finally moving to same-day settlement. “Part of the reason why they did that, why they finally had an impetus to go there,” Hochstein said, “is because of things like Ripple, and bitcoin, and cryptocurrency, as well as real-time payment systems that you see in a lot of other countries.” Hochstein noted that regulators and the Fed have also been pushing in this direction.

I find this slightly mind-boggling. It’s a big deal that ACH is moving to same-day settlement — not real-time, just same-day. In the year 2017.

I asked Hochstein which issues are going to dominate a lot of attention going forward, and he mentioned “open banking” and data portability. Basically, banks have a tremendous amount of lock-in because of all the information they’ve collected and stored about your identity and your account activity.

There’s some talk of forcing banks to provide this information to competitors — or whoever else might be authorized by individuals, e.g. money-management apps like Mint — via API. Guess whether the banks want to do that!

In conclusion, finance gonna finance. Big companies gonna rent-seek. They change when they’re forced to, either by regulation (Dodd-Frank Act, for example) or by the competitive environment. In general, these institutions move slowly. On balance that’s actually a good thing, considering how much havoc they could potentially wreak.


Thank you to Marc Hochstein for talking to me — follow him on Twitter or read his articles.

Photo of the Wall Street bull by Sam Valadi.

Reclaiming the Panopticon

The following is Tim Herd’s response to the previous dispatch about sousveillance.


A tech executive was quoted saying something like, “Privacy is dead. Deal with it.” [According to the Wall Street Journal, it was Scott McNealy of Sun Microsystems. He said, “You have zero privacy anyway. Get over it.”]

I think he’s right, for most working definitions of “privacy”. I think that security professionals, privacy advocates, etc, are fighting rearguard actions and they will lose eventually.

Less than a year after Amazon rolls out Alexa, cops pull audio from it to get evidence for a conviction. That microphone is on 24/7, and in full knowledge of this people still buy them.

Why?

Information is valuable. The same technology that lets me look up photos of your house for shits and grins, or to stalk you, is what powers Google Maps.

Privacy and these new technologies will, and have already, come into conflict. The value of the new tech is way, way more than the value of the privacy lost.

This can devolve into 1984 lightning fast. On the other hand, think about this: “Probably the best-known recent example of sousveillance is when Los Angeles resident George Holliday videotaped police officers beating Rodney King after he had been stopped for a traffic violation.” [From the Steve Mann paper.]

The same surveillance tech that makes us spied on all the time, makes other people spied on all the time. I can’t get up to no good, but cops can’t either.

It’s a tool, and it all depends on how it’s used.

Take me, for example. With a handful of exceptions that I am not putting to paper, there is nothing in my life that is particularly problematic. If the government were spying on me 24/7, it wouldn’t even matter. I have nothing to hide.

(I understand the implications regarding wider social norms. I’m working under the assumption that That Ship Has Sailed.)

The people who do have things to hide, well, we made that shit illegal for a reason. Why should I care when they get burned? That’s the whole goddamn point of the law.

(Aside: I believe that the more strictly enforced a law is, the better it is for everyone overall, because consistency of expectations is important. I bet that the roads would be much safer and more orderly if every single time anyone sped, ever, they automatically got a speeding ticket. Always. No matter what. No cat-and-mouse games with cops, no wondering which lights have speed cameras. Just a dirt-simple law. Here is the rule. Follow it and we are fine. Break it and you will always lose. So many problems are caused by people trying to game the rules, break them whenever possible, and follow them only when they have to.)

(Continued aside: Obviously shit would hit the fan if we started automatically 100% enforcing every traffic law. But you better believe that within a month of that policy being rolled out nationwide, speed limits would rise by at least 50%.)

The reason we care about surveillance is that a lot of things are more illegal than we think they should be.

Obvious example: In a world of perfect surveillance, 50% of California gets thrown in federal prison for smoking weed.

All of this is build-up to my hypothesis:

  • The fully surveilled world is coming, whether we like it or not.
  • This will bring us a ton of benefits if we’re smart and brave enough to leverage it.
  • This will bring an unprecedented ability for authorities to impose on us and coerce us, if we are not careful.

Which brings me to the actual thesis: Libertarianism and formal anarchy is going to be way more important in the near future, to cope with this. In a world of perfect surveillance, every person in San Francisco can be thrown in prison if a prosecutor feels like it. Because, for example, literally every in-law rental is illegal (unless they changed the law).

The way you get a perfect surveillance world without everyone going to prison is drastic liberalization of criminal law, drastic reduction of regulatory law, and live-and-let-live social norms that focus very precisely on harms suffered and on restorative justice.

A more general idea that I am anchoring everything on: A lot of people think tech is bad, but that is because they do not take agency over it. Tech is a tool with unimaginable potential for good… if you take initiative and use it. If you sit back and just wait for it to happen, it goes bad.

If you sit back and wait as Facebook starts spying on you more and more, then you will get burned. But if instead you take advantage of it and come up with a harebrained scheme to find dates by using Facebook’s extremely powerful ad-targeting technology… you will benefit so hard.


Header artwork depicting Facebook as a global panopticon by Joelle L.

Don’t Grudge What Changes

I thought most of this article was stupid, but here’s a statement that hit me:

[A] human being without any technological prostheses is nothing, an unsteady sac of flesh defined only by what it doesn’t have: no shelter, no protection, no society.

Without our material inventions, we are doomed. Without our cultural inventions, we are endangered. At least! Society depends on cohesion. We must cluster and justify our clustering.

The real reason why this doesn’t matter, beyond our hearts: only acceptable justifications matter. “Acceptable” is a malleable thing.

“Technology” is a very broad term that we’ve narrowed down to “computers and software” for no reason except the zeitgeist; no reason except length of existence. So many tools; so much material. We’ve narrowed what counts as “technology” for no proper reason — none that I’m aware of, anyway.

Unless the reason is “ease of classification and control” — but perhaps that is always the reason.

Maybe it’s just because we become accustomed to the tech that already exists. Technically speaking, pun intended, anything manmade counts as technology. It’s very mundane.


Header photo by Nadya Peek.

It Shouldn’t Be Easy to Understand

Mathias Lafeldt writes about complex technical systems. For example, on finding root causes when something goes wrong:

One reason we tend to look for a single, simple cause of an outcome is because the failure is too complex to keep it in our head. Thus we oversimplify without really understanding the failure’s nature and then blame particular, local forces or events for outcomes.

I think this is a fractal insight. It applies to software, it applies to individual human decisions, and it applies to collective human decisions. We look for neat stories. We want to pinpoint one factor that explains everything. But the world doesn’t work that way. Almost nothing works that way.

In another essay, Lafeldt wrote, “Our built-in pattern detector is able to simplify complexity into manageable decision rules.” Navigating life without heuristics is too hard, so we adapted. But using heuristics — or really any kind of abstraction — means losing some of the details. Or a lot of the details, depending on how far you abstract.

That said, here’s Alice Maz with an incisive explanation of why everything is imploding:

Automation is transforming bell curve to power law, hollowing out the middle class as only a minority can leverage their labor to an extreme degree. Cosmopolitan egalitarianism for the productive elite, nationalism and demagoguery for the masses. For what it’s worth, I consider this a Bad Outcome, but it is one of the least bad ones I have been able to come up with that is mid-term realistic.

Which corporation will be the first to issue passports?

Rushkoff argued that programming was the new literacy, and he was right, but the specifics of his argument get lost in the retelling. The way he saw it, this was the start of the third epoch, the preceding two ushered in by 1) the invention of writing, 2) the printing press.

Writing broke communal oral tradition and replaced it with record-keeping and authoritative narration by the literate minority to the masses. Only the few could produce texts, and the many depended on them to recite and interpret. This the frame (pre-V2 maybe) that Catholicism inhabits.

The printing press led to mass literacy. This is the frame of Protestantism: the idea is for each man to read and interpret for himself. But after a brief spate of widely-accessible press (remember Paine’s Common Sense? very dangerous!) access tightened up. Hence mass media as gatekeeper, arbiter of consensus reality.

The few report, and the many receive. Not that journalists were ever the elite, just as the Egyptian scribes. They were the priestly class, Weber’s “new middle”. (Also lawyers. Remember the backwoods lawyer? Used to be all you needed was the books and a good head. Before credentialism ate the field.)

The internet killed consensus reality. Now anyone can trivially disseminate arbitrary text. But the platforms on which those texts are seen are controlled by the new priests, line programmers, which determine how information flows. This is what critics of “the Facebook algorithm” et al are groping at. The many can create, but the few craft the landscape that hosts creation.

It’s still early. Remains to be seen if we can keep relatively open platforms (like Twitter circa 2010; open in the unimpeded sense). Or if the space narrows, new gatekeepers secure hold. But that will be determined by programmers. (Maybe lawmakers.) Rest along for the ride.

That’s all copy-pasted from Twitter and then lightly edited to be more readable in this format.

I included the opening quote about complex systems because although this neat narrative holds more truth than some others, it’s still a neat narrative. Don’t forget that. Reality is multi-textured.


Header photo by kev-shine.

Reflecting on Dystopian San Francisco Again

One of the reasons I started Exolymph is that I live in the Bay Area. San Francisco is the hottest local metropolis, so I visit occasionally, both for work and pleasure. The city is a parallel mixture of luxe yuppie haven and downtrodden slum:

“He pointed out the animated software ads wrapped around bus shelters and glowing on the sides of buildings. He reminded me that the streets smelled of urine and we were passing homeless people wrapped in rags. Sleeping on the damp sidewalk. Meanwhile, money churned in and out of Silicon Valley’s sister city.”

I’ve written about this before, as have others, so please forgive me for flogging a dead horse. But it never ceases to astound me: in this place of economic and technological abundance, you walk by people subsisting on garbage. Maybe if I’d worked in the city full-time for more than three months, I would be desensitized.

San Francisco as a floating prison colony. Artwork by Silvio Bertonati.

Artwork by Silvio Bertonati.

It’s bizarre how normal it feels to live in a dystopia. That is one of my central premises — a lot of the frightening themes of classic cyberpunk fiction have come true in one way or another, but daily life is still mundane. You and I are side characters or NPCs, not the protagonists, so all the depraved systems aren’t exciting. They’re just exhausting.

And I do feel exhausted. I feel exhausted by the constant deluge of bad news — certainly not the first to say so — and I feel exhausted by the pressure to react to each new development, to perform outrage or heartsickness for a drive-by audience.

I feel exhausted by pointing out, again and again, that while technology does “change the world” just by virtue of existing, sometimes it allocates power in scary ways. The ever-accelerating ~innovation~ will knock some of us down.

There’s no solution here. This is just how the world works. Bad things happen. New media happens. Tech businesses happen. Maybe I’d feel better about it if I were more personally laissez-faire.

Relentlessly Growth-Oriented & Profit-Seeking

Developer Francis Tseng, who made Humans of Simulated New York, is currently crowdfunding a dystopian business simulator called The Founder. You play as the head of a startup and your goal is to grow the company however you can. Little obstacles like other people’s lives shouldn’t bother you!

Artwork from dystopian video game The Founder. Image via the Kickstarter campaign.

Image via the Kickstarter campaign.

Tseng writes in his crowdfunding pitch:

“How is the promise of technology corrupted when businesses’ relentlessly growth-oriented and profit-seeking logic plays out to its conclusion? What does progress look like in a world obsessed with growth, as measured only by sheer economic output?”

It looks a lot like San Francisco. That’s not a compliment.

“Winning in The Founder means shaping a world in which you are successful — at the expense of almost everyone else.”

Not so different from the real world of business, right?

Screenshot from The Founder's game website. "Change the world. Everything you do has a consequence. With your revolutionary new products, you have the power to shape a brave new world — one in which every facet serves your ceaseless expansion."

Screenshot from the game site.

I don’t believe that economics is a zero-sum game, especially when it comes to technology. “Innovation” may be an over-fetishized buzzword, but it really is able to move the needle on people’s quality of life.

Unfortunately, that aspect of industry is not prioritized in practice. The profit motive should be a proxy for ~making the world a better place~ but it often gets treated as an end in and of itself.

The Founder interrogates this trend and hopefully makes the player feel uneasy about their own incentives. If you’re interested in playing, contribute!

“The best minds of my generation are thinking about how to make people click ads.” — Jeffrey Hammerbacher, data scientist and early Facebook employee

No Transhumanism Without Technology

“Transhumanism (abbreviated as H+ or h+) is an international and intellectual movement that aims to transform the human condition by developing and creating widely available sophisticated technologies to greatly enhance human intellectual, physical, and psychological capacities.” — Wikipedia

“To whatever extent transhumanism is a concept with meaning, we’ve all been doing it since we started writing things down.” — Aboniks

The difference between a notebook and Wikipedia, or Wikipedia and Google Glass, or Google Glass and a brain-integrated all-of-the-above combination, is mainly the level of convenience. The other big difference is that instead of having to memorize information or track it down yourself, anonymous strangers will contribute directly to your knowledge repository.

Are those strangers trustworthy? Well, most of the time… maybe it’s more accurate to say “an undetermined percentage of the time”. PR nonsense worms its way onto Wikipedia. Is the Google algorithm impartial? Of course not — it’s biased toward making money for the company. But absorbing tainted information via tainted processes is nothing new. As far as I know, that’s the only way.

Cyborg self-portrait by Dan Sakamoto.

Cyborg self-portrait by Dan Sakamoto.

The Aboniks quote from the beginning dates transhumanism to the invention of writing, but I think you could go farther back, to when we started using tools of any kind. What is a stone axe but an extension of the bearer’s arm? The people who wielded obsidian hatchets were very early cyborg prototypes.

As long as humans have been using technology, we’ve been augmenting our neurological and physical capabilities. Like so many aspects of human thriving, technology requires that we rely on each other. The people who make the hardware, whether it’s a paper book, a mainframe, or a biochemical plant. The people who provide the information and source the materials, the designers who create the interfaces by which we access and manipulate our external selves.

I find it terrifying to rely on other people, because I can’t control them, and yet that’s the human condition. That’s how we reach the future, by mutual building. (With an unhealthy dose of the profit motive, I suspect.)

26 Cyberpunk Gadgets Recommended by Reddit

Reddit user MentalRental asked /r/Cyberpunk what tech would be included in a modern-day version of the “R.U. a Cyberpunk?” magazine page. People suggested lots of cyberpunk gadgets, a few of which I didn’t know existed. Here’s a condensed list of the answers that various commenters threw into the ring — I tried to minimize redundancy and limit the list to portable devices:

More suggestions of cyberpunk gadgets can be found in the original Reddit thread.

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