Nickelodeon, Moneyball, Digital Currency and searching for the signal in the noise
How do a children’s TV channel, an analytical system for predicting success in baseball, and crypto forecasters relate? By trying to make sense of data when the data’s unreliable.
Nickelodeon was still a young channel and the audience was small when my company was their advertising agency. My colleagues and I depended on ratings to craft our messages and the network needed them to justify what they charged advertisers. Occasionally, a series would be cooking along when suddenly in one week it would lose 20% of the audience. There was nothing on the competitive landscape that absorbed the viewers that we could determine. No holiday or other event that would have cut into viewing. Just an unexplained drop, and then the next week it would be back up. I proposed a theory about the ratings sample — “Two kids had a test.” The network was small, the ratings sample was small, and any move by a few could have drastic effect. At least, that was my theory and no one had a better one.
The book “Moneyball” takes the reader through a season with the Oakland Athletics as they pioneer a statistical system to win the pennant. Year after year, the creators of the system brought a team that was undervalued and inexpensive (by baseball metrics) to victory at the end of the season, but not in the post season. As the book explains, with every team playing 162 games a year in every configuration, and decades of statistics to merge and analyze, predicting outcomes during the season was science. But with a relatively few post season games, with teams in unfamiliar matchups, in emotionally charged situations that would rarely be repeated, there just wasn’t enough data to make for good predicting.
Which brings us to digital currency
This week, fears of a coronavirus pandemic spread, supply chains were decimated due to work being halted worldwide, and stock exchanges plummeted as investors reared back on their heels, recognizing the harm to future earnings. Analysts tried to gauge the effect of it all on cryptocurrency. Would values hold? Would money flow into the space as an alternative investment? Would unrealistically rosy pronouncements from officials, clearly distrusted by the investment community, force money into the industry to guard against bad monetary policy and bad governance?
If you were watching, there was no shortage of posts about parabolic moves, the myth of safe havens in cryptocurrency, whether crypto is like gold or T bonds or stocks or like nothing else we know. And while some traders may have insight beyond everyone else’s, the most likely argument is that there isn’t enough data, and what’s there is unreliable.
And the right theory is — ?
We still don’t really know what digital currency is, because there still aren’t enough people actually using it. It’s held in a relatively small number of wallets by an undetermined (but tiny) number of people whose motives and actions and reactions can’t be reliably documented. We can have theories. But we can’t know.
Money has been around since beads and shells. The New York Stock Exchange is more than 200 years old. And even those firm and solid foundations get shook at times. Like this past week.
We’re going to need a whole lot more ups and downs, and we’re going to need use cases for currencies, before we know for sure what they’re doing and why. Which means, if you can’t figure out what’s happening, come up with a theory. For now, no one has a better one.
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