Bitcoin And The Small Sample Size Problem

Bitcoin has already made a dramatic leap in terms of its value from where it once began. Those who came on board in the early going are very happy that they did because the value of their coins has risen astronomically. That doesn’t do a lot of good for the people in the here and now who are trying to decide whether it is still a smart move to get involved with Bitcoin.

On the one hand, there is the possibility that the coins continue to muscle out cash and credit cards as forms of payment, which will allow Bitcoin to be the dominant entity in the world of individual finance. Yet there is also the potential for all its momentum to be squelched by the threat of regulatory bodies trying to destroy it.

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As an investor looking for clues about whether you should buy into a specific asset, you would normally look to the past performance of that asset as a solid indicator of where its price might be headed in the future. But Bitcoin makes this prospect difficult because you run into the statistical conundrum known as small sample size.

If all of this seems too complex for you as an investor, you should think about turning control over the artificial intelligence contained in a trading program such as Bitcoin Code. As for what small sample size is and how you can counteract it when it comes to Bitcoin, here is a brief primer.

1. Definition

Small sample size can loosely be defined as a set of statistics that is too minimal to have any legitimate predictive value. As an example, imagine a person who manages to throw a ball through a hoop once in two attempts. It is too small a sample size to say that they will then be able to throw the ball through the hoop half the time.  But if the person throws the ball through the hoop 100 times out of 200 throws, it becomes a much safer assumption to say that they will indeed be able to throw the ball through the hoop half the time, as they have proven this to be the case with all the preceding throws.

2. How It Relates To Bitcoin

When you are dealing with stocks that have been around for decades, you can safely look at past results as a predictor for when it’s right time to buy or sell that stock. But Bitcoin has only been around for a short period of time. And much of that time has been spent in a precipitous rise in value. Now that the price has leveled off a bit, there isn’t much to go on going forward.

3. The Solution

The best way to solve this problem with Bitcoin is the buy and hold method. This will allow you to ignore all the ups and downs that are coming until a reliable sample size forms. You can judge at that point whether it is worth going forward with Bitcoin or selling.

Bitcoin is a tricky statistical problem for investors. Wait until that sample size increases before you make any bold predictions.

If you are interested in even more cryptocurrency-related articles and information from us here at Bit Rebels then we have a lot to choose from.

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