Daily Crypto Thought #2: Lies, Damned Lies, and Statistics
I saw this CNBC headline yesterday and thought “Wow this channel has gone really gone downhill.”
Below is the chart referenced in the article, which seems to show a sharp correlation between the price of Bitcoin and the MSCI Emerging Markets Index.
Even better, the EM index appears to be a leading indicator! So all you have to do is to see what happens in EM, make the same trade in BTC, and…
How to Lie with Statistics
Here, I’ll make his case even stronger.
Check out the chart for iShares MSCI Emerging Markets ETF (EEM) versus the chart for Bitcoin price (log scale) from January 2016 till today.
Wow, it’s literally the same chart. For the past 2.5 years, all you had to do was look at what was happening in emerging market stocks, and you could forecast what would happen in Bitcoin.
And when you think about it, it makes total sense. People in emerging markets countries hold Bitcoin because they don’t trust their national currency, and when their stock markets go down, they have less capital to buy Bitcoin!
Jim Cramer who? This Tom Lee guy is my new bae.
But let’s look at the same data in the prior 2.5 year period, from mid-2013 to end of 2015.
Prior to 2016, these two lines look nothing alike, and they don’t seem to be correlated at all.
Did something profound occur at the beginning of 2016 to align the markets for Bitcoin and emerging market stocks?
Or did I just pick the optimal starting date for chart #1 that best illustrated my case?
