Legendary Investor Soros’ Resilience And Bitcoin Marke

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"Financial markets are very unfriendly to self-awareness: those who are always immersed in their own fantasies need to pay a very heavy price. It turns out that interest in truth is an important quality of success in financial markets."

This is Soros's understanding of the financial market. Soaring that Soros is a speculator in the financial market, it is better to say that he is a philosopher who understands human nature. In the financial market, whether it is the stock market or securities, as long as it involves transactions, its essence is similar, it is a game between human nature. So Soros proposes the theory of reflexivity. Through this theory, we can understand ourselves and market. The theory of reflexivity is a philosophical theory, not a scientific one.

What is the theory of reflexivity?

Human beings are high-level creatures with thoughts and emotions. In any event involving human beings, there is an interactive relationship between the individual's thoughts and reality. On the one hand, the individual tries to understand the truth of the event, while the other, the individual tries to obtain a "truth" in their imagination. These two "truths" have the opposite effect. In the process of seeking knowledge, the reality is a known quantity. However, in the process of participation, the individual's thought becomes a known quantity. These two effects interfere with each other when it is proposed which is known and which is unknown. Soros called this mutual interference "reflexivity."

In short, reflexivity is a two-way feedback mechanism between the observer and the observed. The world we observe is not the true picture of the world, but the world we believe in, the so-called "worldview." And the world we understand, in turn, will affect our behavior, so that we will cycle through each other, thus forming a behavioral difference between individuals.

For investors, continuous learning is an effective way to make up for their own cognitive deficits, but can this make our decisions more effective?

Soros's point of view is that we can broaden our knowledge. The more we know, the more likely we are to make better decisions, but knowledge itself is not enough to make decisions. The events we face are uncertain and random. Knowledge can only explain the things that exist in reality. The establishment of current decisions is based on the individual's understanding of the events. If the individual's understanding is true, then the facts. It will not be unknowable, so that individuals can act according to knowledge, but this is not the truth of the event. The truth is unknowable because individual perceptions often do not correspond to the truth. If you think this is a circular logic, then you understand it.

Soros recognized the market as an organism, and he compared his "quantum fund" to a conjoined baby growing on himself. The financial market is just like the name of his fund company: Soros's decision-making and quantum fund's revenue is like quantum entanglement. Whether or not Soros's decision is consistent with the truth of the financial market, the two are extremely precise. The state of the two-way feedback.

The specific performance can observe the two functions that Soros leads: y=f(x) cognitive function x=f(y) participation function Participating in functions and cognitive functions, the basic trend affects the individual's cognition through cognitive functions, and the changes caused by cognition affect the situation through the participation function. The implication is: what kind of cognition has what kind of behavior. The individual's behavior has a negative effect on the individual's cognition. Cognition is a function of behavior, expressed as a participatory function. If there is a certain kind of behavior, there will be some kind of cognition. Both functions work at the same time and interfere with each other. The function produces a definite result on the premise of the independent variable, but in this case, the independent variable of one function is the dependent variable of another function. What role does reflexive theory play in the financial market?

For the operational logic of the financial market, the most familiar one is the "effective market hypothesis." Theorists tend to summarize the internal laws of operation in financial markets by collecting evidence. Interestingly, Father Soros did not summarize any rules like the "Efficient Market Hypothesis". We can see that the "effective market hypothesis" and "reflexivity" theories are two distinct theories for financial markets. The other two famous investors: Buffett and his best partner Charlie Munger also have the same view of the "effective market hypothesis" in his book. It is also the practice of the three big men seems to coincide. A consensus was reached on this issue.

There are a large number of investors in the market, and their decisions must be different. Many of the individual decisions are offset by each other, and the rest still exists as "mainstream bias". This assumption is fully applicable to the zero-sum game in financial markets. And all the points of view will intersect at a common point: the price of the investment target. Take stocks as an example: In other historical processes, participants' views are too scattered and cannot be aggregated. "Mainstream bias" can only be a symbolic concept, and may have to be introduced into other models to study, but the sample is large enough. In the concentrated stock market, the investor's decision is clearly reflected in the stock buying and selling transaction: when other conditions are the same, the positive bias causes the stock price to rise, and the negative bias causes the stock price to fall, and vice versa. The stock price after the "mainstream bias" decision will affect the investor's decision-making again and again.

If in the cryptocurrency market, what conclusions will be drawn through Soros' reflexive theory? Stay tuned for the next article.

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Legendary Investor Soros’ Resilience and the Bitcoin Market(2)

“I think that bitcoin prices will still rise, but it doesn’t mean that it’s not a bubble. Obviously, it’s based on misunderstandings like the tulip bubble. But blockchain technology can be applied positively.”

This sentence was from George Soros's speech at the World Economic Forum in 2018. We will not comment on it for now. At first, let us use the theory of reflexivity to analyze the price changes of Bitcoin from the beginning of the year to the present.

Soros mentioned the concept of prosperity/depression in his book Financial Alchemy, which refers to:

Find at least one rising price change is the stage in which the positive bias is strengthened; a falling price change is the stage in which the negative bias is strengthened. At the same time, there must be a certain point. At this point, the basic trend and the mainstream bias will be reversed, which will change the price of the investment target.

Buffett said that others fear my greed. It also uses the logic of "the extreme of humanity" to trade. The current bitcoin price seems to have reached a point of fear. In a sequence of negative trends, because of falling prices, speculators’ so-called “beliefs” collapsed, selling behavior led to further price declines, and lower prices defeated entry costs. The psychological defense of the lower speculators, the sell-off of this part of the speculators caused the market price to fall further. Bitcoin can see this cycle from the highest of $20,000 at the beginning of the year to the current $6,300, and why there are some medium-sized peaks in the middle, because some speculators are waiting for the price from what they consider to be the "bottom". The short-term rise caused by the game is caused by the different decisions of speculators. In such a negative cycle, "bitcoin prices continue to fall" has become a mainstream bias, and if you want to reverse this situation, you need more powerful force to enter.

Compared to various news, the K line is the most honest data. To some extent, the future trend of Bitcoin can be judged by observing the trend of the K-line. It generally believes that the price of bitcoin is positively correlated with the fear/greed index of speculators, that is, fear rise when prices fall and greed rise when prices rise. The above graph is a line graph that observes the change in the fear index over time in the bitcoin market, in which a value of 0 indicates "extreme fear" and a value of 100 indicates "extreme greed."

It can seen that the two curves basically overlap by comparing the K-line from the beginning of the year to the current fear-corruption index. An interesting phenomenon is that the index on September 9 is 13 and the price of Bitcoin on this day is $6,111. At the short-term bottom, the fear greed index reached 43 on September 24 and the bitcoin price was $6,642 on the day; when the index on October 12 returned to 13, the bitcoin price was $6,300. As the trading volume in the bear market continues to decline, the amplitude of Bitcoin is constantly narrowing, and investors' expectations have not decreased. However, this kind of expectation is not reflected in the price change. More investors are holding a wait-and-see attitude. The fear of greed is only an indicator to reflect people's emotions.

The market prices of financial assets do not accurately reflect their basic value because they do not even intend to do so. The price reflects the expectations of market participants for future market prices. – Soros

When talked about Bitcoin, we didn't take its intrinsic technology and application scenarios into account, but most of us cared about how much income it could bring us. For more people, the real value of Bitcoin is only one: making money. Most people expect that the price of bitcoin will rise; short sellers expect bitcoin to fall, and conversely, the price obtained after the decision made by price will affect the investor's decision-making and cycle. Most investors don't have the ability to get first-hand information. They only use the "second-hand information" that is released in the network to make decisions. These messages are the information that people who really have first-hand information want you to know. Therefore, ordinary investors are very easy to be wrongly guided by wrong news when making decisions, which is very passive.

When WeChat was just launched, Alibaba also created a real-time communication software that competes with it: DingTalk. Alibaba required that employees just can use DingTalk during working hours. However, WeChat was accepted by more and more people in China. When almost every Chinese downloaded WeChat, even the giants like Alibaba had to make concessions. Thus employees can uninstall DingTalk and use WeChat, because WeChat can improve work efficiency greatly.

Ordinary investors, as the majority of this group, can't have a full understanding of Bitcoin. Just like observing the speech of Father Soros at the beginning of the article, we are not sure whether he holds Bitcoin. The interesting part of reflexivity is here: it does not tell you what is right, and more tells us that our own decisions will be wrong due to their limitations. Based on the cognitive/participation function, until one day, the widespread popularity of Bitcoin will subvert the cognition of more people and form a greater participatory effect. At that time, a new cycle will also be opened.


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In my opinion, with his theory of reflexivity, Mr. Soros had made significant contribution to theory of financial markets. This is also his own trading method. Only few people can trade by fully understanding how this theory is functioning in real world including all connections within one economy