Breaking the Law of Bitcoin Averages – Blinded By The Twinkle

I remember reading about an article on https://foundersgrid.com/bitcoin-price in which the author asked fifty Bitcoin experts and CEO’s to make a price prediction in a years time.

The article is well worth the read if you haven’t gone through it yet. It has some very unique and inspiring comments from some of the leaders within the blockchain space.

After I read the wild price gaps these “experts” were spouting I thought, how could these prices be accurate? They varied greatly and ranged from fifty dollars to $100,000 per bitcoin. Finishing the long list of bullish predictions left me wanting more. I thought about a documentary I had recently seen about the law of averages. Could such an approach be taken in regards to all these experts and their predictions? Surely fifty candidates would prove to be too few but said “the hell with it” and applied the theory anyway.

A quick overview of the law of averages:

“The law of averages is a layman’s term for a belief that the statistical distribution of outcomes among members of a small sample must reflect the distribution of outcomes across the population as a whole.” – Wikipedia.

In previous experiments people would be asked to guess the amount of jelly beans in a jar. Check out the video below for the clip.

One hundred and sixty people were asked to take a guess and to no ones surprise, most were way off. Out of all the guesses only four people were even remotely close. Now let’s apply the law of averages to the results. Once all the predictions are added together, the lump sum is then divided by the amount of participants involved. Like almost all studies done about the law of averages, something remarkable then happens. The average turns out to be less than five beans over the actual number in the jar.

Considering this study used 160 participants I figured fifty bitcoin experts in my experiment isn’t that far off.

I should mention now that I have no background in any of this, I’m just a guy who can use the native windows calculator and a simple, yet irrefutable, supposed, law of the universe.

I should also mention that many experts had guesses that were ranges like $1000-$10,000 and not one specific number like $500 or $5000. This made it more difficult when actually determining a number. It’s important to point out as well that when a prediction was a range (ex. $1000-$5000) I used the average of the two numbers. This, in my opinion, would prove to be the biggest flaw with this experiment but then again I’m doing this more so for kicks than anything else.

When all the numbers were added and then divided by the number of participants I ended up with a price of $5300 USD per bitcoin. As you can see, the article was written in February of 2014. We are now well into 2016 and the price is sitting just under $675 USD.

Two years after these predictions were made, not only were almost all the experts way off, but our attempt at applying a simple universal law failed as well. In this example, sadly, the law does not apply. Bullish optimism and speculative, testosterone filled egos prevented us from reaching any sort of conclusion. After all, a currency that gains 5000% in seven years would certainly make even its biggest skeptics reconsider.

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