Free and easy week review 丨 EHM theory tells you seriously and objectively: BTC halved will not rise in the end

Guide: This week we focus on the impact of "halving" from an economic perspective, and share the "Introduction to the Bitcoin Effective Market Hypothesis" written by co-founder nic carter.

In the hard-core technical article weekly selection section, we will also see the content of zero-knowledge proof code to implement libsnark , Ethereum stateless client R & D progress, and on-chain capacity expansion technology overview.

In addition, Ethereum successfully completed the Muir Glacier hard fork last week, delaying the difficulty bomb by 4 million blocks.

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The following is a selection review of last week's content, enjoy ~

I. Exploring the impact of halving on cryptocurrencies through the efficient market hypothesis (EMH)

It ’s getting closer to the third Bitcoin reward halving event in May 2020, and according to Wang ’s article “ Eight currencies to be halved in 2020 ”, we will also welcome this year ETC, BCH, BSV, DASH, and ZEC are halving the rewards of small cryptocurrency assets. Well, halving is not only a technical task, it is also a thing involving a market economy.

Therefore, this week's academic topic, we will focus on the "halving" event. Previously, discussions on "halving" were summarized based on historical data from the past, and then the future was predicted based on this. Obviously, such discussions were fundamentally flawed, and "halving the unfulfilled expectations" caused "mine disaster "The discussion was also based on assumptions, so the reference is actually not significant.

The co-founder of, nic carter, conducted an in-depth discussion based on the theory of the efficient market hypothesis (EMH). He believes that the halving of small plate assets is significantly different from the halving of BTC, which is an efficient market The effect of its "halving production" is more inclined to "market ahead" (priced in) rather than becoming an appreciation catalyst. The factor that affects market prices more is the judgment of the pricing entity (whale) on the fundamentals .

Free and easy comment: It may be the most objective and dry article in the market about the effect of halving. If you are interested, you can read the full text. Some content is omitted here.

Here is the general content:

Origin of the efficient market hypothesis (EMH)

The efficient market hypothesis (EMH) was proposed by several great thinkers, including Benoit Mandlebröt, Louis Bachelier, Friedrich Ha Friedrich Hayek and Paul Samuelson. Hayek's book The Use of Knowledge in Society provides a useful background interpretation of this concept, although EMH is not mentioned in the book. His seminal work advocates supporting a distributed, market economy rather than a centrally planned economy.

The key phrase in the book: The market is an information aggregation mechanism, no matter how advantageous the central planner is, it cannot match it.

For Hayek, the beauty of markets is that as long as they act selfishly in their own interests, individuals involved in the economy will produce signals in the form of prices.

EMH focuses this perspective on financial assets. The theory is that investors use trading mechanisms to reflect relevant information in prices. After a series of studies on stock returns, such as the "Certificate of Random Expected Random Price Fluctuations" proposed by Samuelson in 1965, EMH was finally compiled by legendary financial scholar Eugene Fama in 1970.

In a dissertation titled "Effective Capital Markets: A Review of Theoretical and Empirical Studies," Eugene Fama defines efficient markets as "markets where prices always adequately reflect available information."

EMH is not a mystery, it just means that market prices reflect the information available. This is why academia often refers to them as "informative" efficient markets. Efficiency here refers to the diffusion of information.

So what does this mean? This simply means that if there is new information related to the asset being traded, that information tends to be quickly incorporated into the price of that asset. If you can reasonably imagine that future events will affect price, then when you know it, they are often included in the price.

The market does not wait for (known) events to occur, they anticipate them in advance . This means that if weather forecasts predict a hurricane next week and destroy sugar cane plantations, speculators will raise sugar prices that day. And when there are unpredictable external shocks (such as hurricanes occurring without warning), prices can only respond in real time as information becomes available. The speed of information fusion is one of the tests of efficiency.

Although EMH is a simple concept, it tells us a lot about how the market works. The market is efficient if prices quickly incorporate new information.

Importantly, one consequence of EMH is that once all relevant information is included in the price, you can only fluctuate randomly, which is called "noise". This means that, although asset prices will still fluctuate, even if there is no new fundamental information, these fluctuations themselves do not contain any information.

Finally, the difficulty of presenting unique new information often changes with the complexity of market participants and the liquidity of assets. This explains why you can find an advantage in an unknown micro-cap, but you may not find an advantage in predicting Apple's stock price.

Ever since Fama's dissertation was published, and because of popular books such as "Walking Wall Street" by Burton Marchier, a heated debate has erupted over whether "active management is worth it."

In fact, because efficient markets find it difficult to find a consistent advantage, many investors are beginning to question whether active trading instruments such as hedge funds and mutual funds are justified. This is one of the most critical debates in the financial world today, mainly because people are increasingly realizing that markets are indeed universally effective.

EMH description

I think there are some exceptions to the "hypothetical" part of EMH. If I wrote it, I would call it an efficient market model, not a hypothesis.

This is because it does not really contain a hypothesis. It does not impose a specific testable requirement on the world.

As mentioned earlier, EMH assumes that market prices reflect available information. Interestingly, Eugene Fama called it an efficient market model in his 1970 paper, not a hypothesis.

It seems he has the same intuition.

Let me be clear! I don't believe in strong EMH. I know no financial professional does this.

In general, it is a "scarecrow fallacy." Strong EMH believes that the market will always reflect all the information. If this is true, there will be no hedge funds or active managers. No one will bother to delve into Apple's quarterly report, and no one will assess the prospects for oil discovery in the Permian Basin.

Obviously, given our huge active asset management industry, where many very smart individuals are constantly seeking new information on various assets, this makes this "strong form" not true.

Honestly, EMH is not about you "believe or not". Our choice is to understand the market as a useful information discovery mechanism, or to completely negate the effectiveness of the market. Of course, there are conditions that lead to inefficient markets. Eugene Fama also acknowledged in his 1970 paper that transaction costs, the cost of obtaining relevant information, and disagreements among investors are all potential damages to market efficiency. I will discuss two issues here: the cost of seemingly important information, and the friction inherent in actually expressing market views.

If EMH usually holds, how does the market compensate for the information found?

So, what reason can explain the fact that despite the overall market effectiveness, there is still a large (though shrinking) industry involved in active investment?

If market-relevant information is usually encoded in the price, there is no profit in finding and trading new information. But it is clear that many individuals and companies are indeed actively trying to provide new information. This is a bit paradoxical.

This leads to another of my favorite papers, The Impossibility of an Effective Information Market by Grossman and Stiglitz.

The authors point out that collecting information is expensive, not free. They then noticed that because EMH assumes that all information is immediately expressed in price, the cost of generating new information under the model is not compensated.

As a result, markets cannot be completely efficient: information asymmetry must exist because there must be a way to compensate informed traders . Their model introduces useful variables of the cost of information into a standard model of market efficiency. According to their model, if information becomes more expensive, the market becomes inefficient and vice versa. Therefore, whether the market reflects their fundamentals depends at least to some extent on the ease of the relevant information. The author of the paper concludes:

"We believe that due to the high cost of information, prices cannot fully reflect existing information, because if this is done, those who spend resources to obtain information will not receive any compensation. Between the efficiency of market dissemination of information and the motivation to obtain information There is a fundamental conflict. "

A rather pleasant hint given by Grossman and Stiglitz is that in order for the arbitrage price to return to the "should" profitability level, a group of traders must disrupt the price all year round. Fisher Black (author of the Black Scholes formula) gave us an answer, he published a lovely paper entitled "Noise" in the Journal of Finance. He mentioned those who are simply "noise" traders (traders who trade by noise rather than information), and noise is everywhere. You can see a lot of vowed indicators put forward by people on Tradingview. Black divides market participants into two groups:


  1. People who trade by noise, from an objective point of view, they are best not to trade. Maybe they think the noise on which they are based is information, or they just like trading.
  2. Since there are many noise traders in the market, they pay for those who have the information to trade. Most of the time, noise traders as a group will lose money through trading, while information traders as a group will make money.


According to Black, "noise makes financial markets possible." The presence of noise traders provides liquid trading companies such as hedge funds with valuable trading opportunities. In the poker metaphor, noise traders are fat fish, and they can make sharks profitable even with rakes.

Ask previous online poker players. As the game becomes more and more fierce, after the inexperienced players leave, the game will no longer make money.

Noise theory addresses the "obvious impossibility" of efficient markets as Grossman and Stiglitz point out. The noise introduced by "rookie" traders provides experienced traders with considerable economic stimulus, thereby introducing information into prices.

If EMH usually holds, how do you account for market uncertainty?

This is another good question. There are a large number of examples showing that arbitrage opportunities are easy to identify, but for some reason, arbitrage cannot end.

The most famous example is the deal that led to the demise of US long-term capital management companies. In this example there is a pair of bond transactions that are actually the same but the prices are different (in part because of a Russian default in 1998). Long-term capital companies are betting that bond prices will tend to be consistent. However, many other hedge funds have also used leverage to make the same bets. Because bonds failed to converge in time, some hedge fund funds were forced to liquidate these positions. This triggered a feedback loop that led to additional squeeze: lower-priced bonds were sold, and higher-priced instruments continued to rise when shorts were exploded. Long-term capital management companies are betting on the integration of market efficiency and these tools, but due to market pressure and suppressed leverage gradually weakened, they were unable to complete the transaction, and the fund eventually went bankrupt.

In 2012, Shleifer and Vishny published a paper entitled "Arbitrage Limits" to study this phenomenon. Shleifer and Vishny pointed out that arbitrage is generally not done by the market, but is a task entrusted to a specialized agency (usually a fund). The cost of arbitrage is therefore high: it requires freely available capital. Here's the paradox: When the market is under pressure (for example, when you make many stocks trade at low prices), huge arbitrage opportunities arise. But capital is the least available during times of market stress.

Therefore, arbitrageurs who need capital operations will be the least equipped to perform the arbitrage when they need it most. These are the limits of arbitrage. As the author of the paper stated:

"When arbitrage requires capital, when arbitrageurs have the best opportunity, that is, when the mispricing they are betting on becomes worse, arbitrageurs may become the most constrained. In addition, there are concerns about this situation Will make them more cautious when making their first transaction, thereby reducing market efficiency. "

As a simple example, a value investment hedge fund has raised an external capital, and they will tell the LP (fund investor) that the fund intends to make a reverse bet, such as buying valuable stock when the price is cheap. Assuming the market goes down, they buy a basket of stocks with a reduced valuation and a lower price-earnings ratio. However, assuming the market subsequently drops another 40%, their limited partners will stare at losses and demand redemption.

This is the worst moment: the fund has to sell these stocks at a loss (even if managers have strong confidence in long-term profitability). They are more willing to buy stocks that are more attractively valued (and now discounted a lot). To make matters worse, liquidating these positions will force stocks to fall further, penalizing other funds that engage in the same transactions.

Regarding EMH's arbitrage warning limits, many situations are actually explained, people will describe market conditions and complain that the information is not included. This is usually considered a slight attack on EMH. But of course we cannot expect the malfunctioning market to function properly. Therefore, when Dentacoin's multi-billion-dollar hypothetical market value is touted as an example of inefficient markets, given that its ownership is extremely concentrated, short-term borrowing is not possible. This means that market participants cannot meaningfully express their views on assets.

A more comprehensive vision

Considering the above restrictions (market structure issues, expensive information, arbitrage restrictions), we can design a more complete version of EMH, which can incorporate these considerations. So you can design an improved version of EMH: "The free market reflects the information available, as long as the pricing entity is willing and mechanically able to act on it."

  1. Pricing entities: Insignificant groups (retails) are in most cases unimportant, and a few well-capitalized participants (whales) are sufficient to incorporate important information into the price;
  2. As long as they are willing to: This includes "expensive information" warnings. If the cost of obtaining information is higher than the cost of instrumentation (for example, in the case of accounting fraud found in micro-shares), the information will not be included in the price;
  3. Mechanical: This covers situations where arbitrage restrictions exist. If there is a liquidity crisis, or the market is not functioning for any reason, and the fund is unable to implement its views on the market, inefficiencies may occur;

So when most financial professionals talk about EMH, they usually refer to a modified version, as mentioned above. They almost never refer to the "strong form" of EMH.

Interestingly, through the study of EMH, we found a completely different concept. The model I describe here is a bit similar to Andrew Lo's adaptive market hypothesis.

In fact, although I'm happy to think that most (liquid) markets are effective, in most cases, the adaptive market model more accurately reflects my view of the market than any general EMH formula. Many active fund managers I know are at least familiar with Lo's work. This theory is fully developed in his book, but you can find a concise version in his 2004 paper.

In short, Lo attempts to reconcile behavioral economics with the orthodox EMH school. He called it the adaptive market hypothesis because he relied on an evolutionary approach to the market. Further extending Black's point of view, Lo's classification of market participants into "species" provides us with a perspective on market efficiency that deviates from the mainstream:

"Price reflects as much information as environmental conditions, the number of" species "in the economy, and the combination of properties determine, or use the appropriate biological term 'ecology'."

Lo describes the profit opportunities brought by the asymmetry of information as "resources", and thus draws the following conclusions:

" If multiple species (or members of a single high-density species) compete for fairly scarce resources in a market, then this market may be efficient, such as the 10-year U.S. Treasury market, which does reflect very quickly the most relevant Information. On the other hand, if a few species compete for considerable resources in a particular market, the efficiency of that market will be reduced, such as the oil painting market in the Italian Renaissance . "

The situationalism and pragmatism presented by Lo's model is consistent with the experience of most traders. I don't want to delve too deeply into Lo's point of view, but I would still recommend his book, at least his thesis summarizes his theory.

With all that said, what do they mean for Bitcoin halving?

As we can see, most markets are effective most of the time. I have discussed some exceptions: restrictions on arbitrage, non-free market conditions, behavioral biases, and situations where market participants may not have sufficient motivation to provide relevant information.

The question is, do these conditions apply to the Bitcoin market?

For now, this does not seem to be the case. We are not caught in a liquidity crunch and there are no obvious limits to arbitrage.

As for the free market, Bitcoin is obviously a very free market. It is one of the most free markets on the planet (because Bitcoin itself is highly portable and easy to hide, and it is traded globally). Unlike most currencies, Bitcoin does not have the support or guarantee of a sovereign state, and participants are free to go long or short it, so they can express different opinions.

Therefore, we can check whether the scale of Bitcoin is large enough that a considerable number of mature funds are working together to present important information? With a market capitalization of $ 150 billion, I think it's absolutely consistent. The ultimate test of market effectiveness is whether market operation information is immediately included in the price, or whether it is lagging. And a study that covers the impact of external shocks (such as exchange hacking or sudden regulatory changes) on prices will be welcome.

With regard to Bitcoin, the only remaining questions are related to differences between market participants (ie lack of valuation models commonly used by pricing entities) and the development of more financial channels.

There are still a few types of entities that have difficulty obtaining Bitcoin exposure. Of course, overcoming these challenges will make Bitcoin's future brighter.

So, will the "halving" event lead to price changes in advance, or will it be a catalyst for appreciation? If you read this from the beginning, you will understand that the phrase “changes in circulation will be ignored by pricing entities” is obviously ridiculous . Anyone interested in Bitcoin knows the trajectory of Bitcoin supply from the beginning .

In January 2009, the first version of the Bitcoin client released by Satoshi Nakamoto imposed a coding limit on the total amount of Bitcoin. Changes in the long-term plan's issuance rate do not constitute new information. The response to any anticipated demand side of the "halving catalyst" can also be predicted by those mature funds.

Now, can Bitcoin start to appreciate? There is no doubt that if it happens, it will be caused by a fully predictable change in the issuance rate (halving the annual issue rate from 3.6% to 1.8%), but I think there are other factors that will have a positive effect on the price , Most of them are difficult to predict. Is this consistent with EMH? indeed so. EMH allows information shocks (for example, imagine if major currencies in the real world have rampant inflation), it may also be that pricing entities have adopted an overly conservative view of the future of Bitcoin, or they are on a weak basis On model. This is consistent with weak EMH.

Since insider trading is prohibited in regulated securities markets, stock prices generally do not reflect pending catalysts such as acquisitions until they are publicly announced. However, in virtual commodity markets like Bitcoin, the "inside" standard is often not applicable. If you find a catastrophic vulnerability, you can expect that this information may be incorporated into the price immediately. In this sense, the information efficiency of the Bitcoin market is likely to be higher than that of the US stock market.

Common objections

I'm considering some objections here, and it is very likely that your answer will be covered.

1. I found an example of inefficiency, which is evidence of general inefficiency in the market

It's a bit like throwing a baseball into the air, claiming that it temporarily left Earth to prove that gravity doesn't exist. Little or no financial practitioners believe that all markets are efficient. If the information is unevenly distributed, or if the owners of the information lack the means to instrument their views, prices may not reflect the information. These failure examples do not prove the weakness of EMH, but enhance its usefulness as an interpretation tool.

2. Behavioral bias exists, so market efficiency does not hold

Researchers did find some persistent behavioral biases, and I think these biases may have a certain degree of systemic impact on asset prices in the medium term. The question here, however, is whether they are relevant to the current problem (the assumed impact of changes in supply rates on asset prices), and whether these so-called deviations really affect the price formation of highly liquid assets with a market value of up to $ 150 billion. You might answer: "Well, Bitcoiner has a bias that will cause them to drive up asset prices if the issuance rate drops sharply, even if the information is already known." If you can prove, Carney Kahneman and Tversky's style (which is a universal human bias) affects asset pricing and contradicts dominant market models. Not only will you win the argument, but you May also win the Nobel Prize. In this case, I would like to introduce you to Lo's adaptive market theory again.

3.Bitcoin's efficiency is impossible because there are no fundamentals

Some people believe that emotion drives everything in the cryptocurrency market, and fundamentals do not exist, which is a convenient fallacy. Here is a short but not exhaustive list:

  1. The quality of the financial infrastructure that enables individuals to access and hold Bitcoin. In 2010, buying Bitcoin was almost impossible, and your only hosting option is Bitcoin QT (Satoshi Nakamoto client) or a homemade paper wallet. Today, you can get a billion dollar bitcoin exposure, you can host Bitcoin yourself, or you can rely on some of the world's top asset management companies and custodians, which is a fundamental change;
  2. The quality of Bitcoin software (comparing the current version with Satoshi's first client). The protocol itself and the tools surrounding it have been improved, refined, and made more useful;
  3. The actual stability and functionality of the system-imagine that Bitcoin cannot generate blocks for a month. This will definitely lower the price, and if you admit it, you admit that there are "fundamentals" in addition to emotions;
  4. Number of individuals who know and demand Bitcoin globally: this is the "adoption". This is not just a sentiment, it is a measure of global capital sources actively seeking bitcoin exposure;

There are many other basic indicators, so I won't introduce more here. Funds that trade Bitcoin will try to track the trajectory of these variables and determine whether Bitcoin is "overpriced" or "moderately priced" relative to its growth. This is the "fundamental analysis".

Again, if you haven't been persuaded, think of the contrast between the state of Bitcoin in 2010 and the state of Bitcoin in 2020. Such as "buy", "storage", "use scenario" these fundamentals. Of course, these are not the "fundamentals" of cash flow stocks, but Bitcoin is not a stock.

One unit of Bitcoin is the statement of the ledger space, which allows you to access specific transaction utilities on the network. I admit that the fundamentals of Bitcoin are not as clear as stocks. However, the concept of "fundamentals" is not limited to equities or cash flow instruments. Global macro investors consider currencies based on macro variables or political risk assessments. Commodity traders focus on productivity and supply fluctuations. All of this shows that foundations trade based on meaningful information related to the market, not just sentiment or hype. The problem is that it is difficult to make an accurate basic assessment of Bitcoin.

4.Bitcoin's efficiency is impossible because it is unstable

It is entirely possible that turbulent and efficient markets will emerge. Recall that all efficiency requirements are that the information available is included in the price. Think of the value of a call option as it approaches expiration and its base price fluctuates around the exercise price. Options are still in the money for a minute and become worthless the next minute. This will be a situation that is both unstable and effective.

Or, consider the value of bonds issued by the Argentine government (in response to political unrest). The most fundamental is the willingness of the Argentine government to repay debt. An effectively functioning market will continually reassess the prospects for creditors to be repaid. In a period of volatility, the fundamentals are unstable, so the value of bonds is also unstable. Bitcoin's volatility is partly due to market participants' rapid reassessment of the speed and trajectory of their future growth. Even small changes in expectations of future growth rates can have a significant impact on implied present values. (In fact, in the DCF model of stock valuation, output is very sensitive to long-term growth) Market participants often modify their growth expectations, and the expectations are different (because there is no single dominant model for the price of Bitcoin), This leads to increased volatility. If future growth expectations are the most basic, then these expected rapid appreciation will cause price fluctuations. Therefore, volatility does not imply inefficiencies.

5. If EMH is right, then Bitcoin should have started its life at its current valuation

The world doesn't work that way, and as I explained above, Bitcoin didn't begin to exist with mature, rock-solid fundamentals like it does now. Its growth is constantly changing, and in its early stages, there is considerable uncertainty as to whether it will achieve any success.

It must go through all these trials and tribulations to reach today's level. Therefore, it does not make sense for large funds to intervene after the birth of Bitcoin on the first day (although it would make sense to look at it afterwards) because they do not know that Bitcoin will grow, and in many cases large investments The Foundation was unable to invest in Bitcoin for structural reasons.

Think about how you got Bitcoin in 2012? You have to use something like Charlie Shrem's BitInstant or the bankrupt Mt Gox, and we now know that they all crash. You can also participate in Bitcoin mining in the early days, but this is a difficult and technical task.

This brings us back to the "arbitrage limit". Due to regulatory reasons, operational risks, and a lack of functional market infrastructure, many investors who want to start bitcoin in 2009 actually couldn't buy bitcoin at that time. Even if they do believe that Bitcoin has a market value of more than $ 100 billion at some point, they are not in a position to instrument this view. In addition, investors did not have a firm conviction in the beginning. They need to see Bitcoin operating successfully in the wild, not shut down, before choosing to store wealth in it.

If you think that Bitcoin's continued success represents new information being pushed to the market, then you will understand that EMH does not require it to be fully formed from the womb at an initial valuation of more than $ 100 billion.

6. Some things affected by Ponzi scheme (such as Plustoken) will not be effective

I agree that "Plustoken participants buy about 200,000 BTC", which is the main driving force for the price of Bitcoin in 2019. However, this does not affect efficiency. If investors in the Western world know that Plustoken owns these coins, and they are preparing to sell them, and the price of Bitcoin has not changed, then I would agree that "there will be problems with efficiency." However, after most of the tokens of Plustoken were sold off, BTC information about Plustoken penetrated into the West. Remember that efficiency does not require that prices never change. Instead, it indicates that prices change based on new information.

7. Small plate assets will increase by hundreds of percentage points driven by suspicious news, which is evidence of market inefficiency and refutes EMH

Similarly, local or temporary irrational evidence does not invalidate EMH. You either believe the market is a good information clearing mechanism or you don't believe it. It is true that from a structural point of view, many of these small plate altcoin markets are very bad. These assets may be traded on unregulated or illiquid exchanges. This means that the prices you see do not necessarily reflect reality. Therefore, in addition to the poor market environment for their trading, the injection and sale of temporary non-current assets can prove nothing in both directions.

In general, most EMH advocates will acknowledge that efficiency changes positively with asset size and complexity of participants. In large listed stocks, it is difficult for you to find an advantage. It is very likely that if you find some information about the Apple or Microsoft trading market, others will also find it. But in smaller, less liquid asset classes, the return from browsing related information is much less, so fewer analysts are actively inserting information into assets, which means opportunities are likely to exist. This is because the large-scale, multi-billion dollar funds simply cannot implement the strategy of micro capital asset trading. As a result, there is a clear inconsistency between the inefficient micro-altcoin market and a mature asset market (many analysts are looking for advantages).

8.When small cryptocurrency assets suffered a 51% attack or bad news, their prices did not fall, indicating that the cryptocurrency market is not efficient

I will follow Lo's adaptive market interpretation here. Small-cap assets are often held by strong believers, or better explained, they are closely held by allies of the founding team. In this case, cartel-like behavior can easily occur. You may have seen such a conversation on Reddit and Telegram: "Please holders urge each other not to sell the coins in your hands, especially not to sell in the event of bad news, because the crypto community will briefly focus on this project … … "

9. As some Bitcoin enthusiasts (bitcoiner) regularly buy Bitcoin, and the new supply will decrease, there is no doubt that this will cause appreciation

This is an example of first-order thinking, while EMH is in second order. For me, the key insight of EMH is that any information you have will be available to a mature market participant. As mature market participants have a strong incentive to find relevant information and trade on it, you can assume that they have already expressed this information the moment they obtain it. If this is indeed a plausible assumption (static purchase pressure will have a positive effect on prices when the circulation is halved), then these funds have expressed this positive view in the form of transactions. This is what "market in digests known information" (priced in). If the market finds something important to happen tomorrow, it will be reflected in the price today. This is one of the trickiest features of EMH, and you need to work hard to get it done.

Then the question becomes, "Do I have the information that the smartest and most adequate hedge fund analysts don't have?" Instead of "Does this information affect prices in a vacuum?" If the answer is "NO" , Then you can expect that information is currently included in the price (actually this is important information).

Why focus on funds? The reason is that they are professional companies that actively seek out information and express it in the form of transactions. They are entities that align prices with "fundamentals." You need to remember that you are not operating in isolation. You are operating in a jungle full of predators. These predators are skilled, fast, and resource-rich. In the stock market, we are talking about funds that have a personal relationship with the CEO and CFO who can have dinner together and explain whether they are optimistic about the next quarter. There are dozens of analysts in these foundations to crack data sets that you don't even know. They will track corporate private jet movements to determine if acquisitions are possible. They will run a machine learning model to assess the emotional state of eyebrows twitching when Jerome Powell announced the Fed's action. They will acquire satellite data images from the parking lot to predict whether Wal-Mart will exceed its quarterly profit forecast. Competition in the public market is extremely fierce, and anyone who believes that they have an advantage can freely express their views in the transaction.

Therefore, if you feel you have market-related information (for example, the market expects a shrinking supply to push up prices), so do the most sophisticated participants. They have evaluated and acted. In addition, you need to keep in mind that markets are not democratic, they are weighted by capital. Whales are able to express much stronger opinions than small fish. Hedge funds have more capital (and they often get cheaper leverage!). Then, when they form an opinion on a stock, they have the means to express that opinion, and this is how "pricing" occurs. Therefore, only the pricing entity is actually the most important.

10. Plustoken accumulates 200,000 BTC (about 1% of the supply) and then sells them. This is the main driving force of Bitcoin's price trend in 2019, so why can't it be halved (affecting 1.8% of circulation)? Play the same role?

First, the rise and fall of Plustoken was unexpected, and it was a truly new piece of information (so that most investors didn't know its size until after the Ponzi scheme basically ended). In addition, as far as we know, Plustoken's Bitcoin wallet is liquidated in a relatively short period of time (1-2 months). For any market, the number of these coins is huge. The annualized rate of halving the circulation has decreased by 1.8 percentage points, which indicates that the BTC mined each month will be reduced by about 24,800 BTC. This is a large number, but its influence is not equivalent to 200,000 BTC. Liquidated in the short term. And, unlike Plustoken, halving is well known.

11. The halving will affect bitcoin from the demand side, which will excite investors and get news reports. Therefore, halving will remain a positive catalyst for Bitcoin

The above logic also applies here. If you look at the Litecoin case, the price is clearly raised in anticipation of halving, and then collapses after the halving occurs. This is likely to be the case where investors hope that "halving" will be a positive catalyst. You can see how investors position themselves to influence prices. You get into a recursive game where everyone is watching other people and they are trying to predict what others are doing. As a result, even if a highly anticipated demand-side shock occurs on the halving day (through news reports or pure investor enthusiasm), pricing entities will anticipate this shock and may incorporate it a few months ago Into the price.

12. If the market is efficient, then investing in Bitcoin is meaningless

This is not the case at all. Some aspects of Bitcoin are completely known and transparent, such as supply plans. However, as I mentioned earlier, many of the fundamental drivers of Bitcoin price are not easy to quantify or even easy to know. For example, no one knows exactly how many Bitcoin owners are in the world (note: addresses cannot correspond to people). If you can predict these factors better than others, you will find an advantage. In addition, there are many unpredictable shocks, and they may have a positive impact on Bitcoin in the future, such as a currency crisis.

After all, if you are better at predicting Bitcoin growth than other pricing entities, you may want to use your superior knowledge to trade. I think this is a perfectly reasonable prospect. So I would never underestimate the potential attractiveness of Bitcoin to an active distributor, even in the face of EMH. In fact, I personally have a positive opinion of Bitcoin. So it's clear that I believe that having domain-specific expertise on Bitcoin has advantages. If I were a strong believer in strong EMH, I would not do any management! In fact, active fund managers have a strong incentive to find ways to reject EMH. For example, what a basic demand-oriented Bitcoin model might look like, here is an attempt by Byrne Hobart: 45 In the presence of weak EMH, basic analysis is possible and indeed necessary. After all, someone has to analyze to reveal the information that is ultimately expressed in terms of price. This work is left to active fund managers. So after all, those disgusting hedge fund investors are useful for certain things.

Thanks to Allen Farrington and Leigh Cuen for their helpful comments and feedback.

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Second, hard core technical articles of the week

2.1 Technology Dry Goods | Zero Knowledge Proof Learn by Coding: An Introduction to libsnark

libsnark is currently the most important framework for implementing zk-SNARKs circuits, and is widely used among many private transactions or private computing related projects. The libsnark development series written by SECBIT Lab starts with the basic concepts of libsnark and explains step by step All the important steps for developing zk-SNARKs circuits using the libsnark library.

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Free and easy comment: Without practical operation, theoretical knowledge is about 0. Starting from the code, it is the correct posture to truly master zero-knowledge proofs. It is highly recommended.

2, 2 dry goods | Ethereum stateless client development and difficulties

The Ethereum Foundation's official website published an article "Stateless Ethereum R & D Progress" last week. This article explained in detail the concept and pedigree of Ethereum's "stateless client", as well as the related roadmap. Point out that "witness content size" is the biggest problem that stateless clients need to solve at present.

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Easy and Easy Comment: As a very objective popular science article, I don't require how interesting the article can be.

Technical Interpretations 2 and 3 | On-Chain Expansion Technology (1): Data Layer and Network Layer

An on-chain capacity expansion review article written by xyz Research Institute, which analyzes the data layer, network layer, and consensus layer from DAG (Directed Acyclic Graph), Segregated Witness / Expanded Block, Block Interval, and Shard Expansion on the chain.

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Free and easy comments: This article has well analyzed the advantages and disadvantages of these expansion schemes, which has great reference significance for investors and developers.

Technical Progress of Mainstream Blockchain Projects

3,1 Ethereum completes the Muir Glacier hard fork, and the difficulty bomb is delayed by 4 million blocks

Last week, Ethereum, the second largest cryptocurrency by market capitalization, completed the "Muir Glacier" upgrade at a block height of 9.2 million. This upgrade aims to delay the difficulty bomb to 4 million blocks. After completing the upgrade, The Ethereum block interval will return to normal levels.

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Easy and Easy Comment: No suspenseful update, and I hope it is the last such "upgrade".

This week's exciting content is here, see you next week ~