Analyzing Bitcoin: Why BTC is so valuable, and whether it will still be in the future

You can’t throw a rock these days without hitting a story about cryptocurrencies in general and Bitcoin in particular. From discussions of mining hardware, to predictions about the future of such movements, to the real identity of Bitcoin’s enigmatic creator Satoshi Nakamoto, plenty of people have an opinion – but objective attempts to analyze what drives the Bitcoin market and what factors influence the price of the currency have been few and far between. A year ago, as the price of Bitcoins began to lift out of the doldrums, I gave a long-time friend and tenured professor of mathematics a call. Would he be interested in taking a look at Bitcoin from a mathematical angle and seeing what we could make of the currency’s activity? He was.
Regression and statistics
Before we dive into the data, we need to discuss a bit of statistics. One of the techniques for comparing the relationship between two variables is called regression analysis. In theory, the relationship between any two trends can be measured, and there are entire websites dedicated to pointing out odd correlations, like this one illustrating the meteoric growth in Facebook use against Greece’s skyrocketing debt problem.

This post was published at Extreme Tech on September 10, 2014.