What does it mean when it was written in The Economist that a group of whiz kids hired by Barclays Bank modelled the cryptocurrency craze as a disease and concluded that the bull market in 2017 is not ever occur again ?
After reading this chapter, I suspect that the they used models of broadcast, diffusion and contagion to model the behaviour of cryptocurrency investors – specifically this thing called the SIR Model.
If I am right, then cryptocurrency investments reach fever pitch based on the following variables :
P(contact) = Probability that a non-crypto investor gets exposed to a cryptocurrency idea.
P(spread) = Probability that a person exposed to a cryptocurrency idea would actually invest in it.
P(recover) = Probability that a cryptocurrency investor quits crypto-trading.
Whether a disease or an investment idea can spread through a population depends on this number called the basic reproduction number or R0.
R0 = (P(contact) x P(spread)) / P(recovery)