How SMBs Can Use Social Physics to Get Ahead of Their Competition

 “A speculator is a man who observes the future and acts before it occurs.”

Bernard Baruch


Paul Tudor Jones, the man who predicted and profited from The Crash of 1987, says in a Goldman Sachs interview, “I would steer clear of bonds.” Mr. Jones sees Ten Year United States Treasury notes rising this year to a yield of 3.75% from their current 2.80%. That would be greater than a $72,000 loss in market value on a $1 million bond investment—not the kind of annual return an investment manager would like on an annual report.


When in January the Two Year Treasury Note priced above a 2% yield for the first time since 2008, William H. Gross “The Bond King” tweeted, “Bond bear market confirmed today. 25-year long-term trend lines broken.” Then in February Ray Dalio, founder of Bridgewater Associates and #66 on the Forbes list of the 400 Richest Americans, said “A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981.” A 1% rise in Treasury yields is exactly what Mr. Jones is predicting. The US economy was paralyzed by two recessions during the period from 1980 to 1982.


But all markets, bonds, stocks, commodities, and cryptocurrencies, are auctions that exist only because buyers and sellers participate. Future prices of items of value are dependent upon the actions of human beings. When the greatest minds in finance predict the future of prices, they are actually guessing the behavior of individuals with money to invest or with assets to sell. Prices are set when offers to sell are matched with bids from prospective buyers. More important than what the best guessers might think is what the ocean of humanity involved might do, where the crowd might move, why and when.


Major corporations like Walmart, Coca-Cola and Mastercard use a technology originating at The Massachusetts Institute of Technology (MIT) called Endor Protocol in order to understand and influence consumer behavior. Using “predictive analysis” they determine who their customers are and what those customers will buy. Soon, with the launch of Endor.coin, small businesses and individuals will have answers to predictive questions that until now have only been available to the most powerful corporate entities. Using a blockchain-based protocol, Endor will allow anyone holding Endor digital coins (EDR) to ask and receive answers to predictive questions. Endor.coin will first focus on the cryptocurrency market.


Predictive analysis, which Endor provides for its customers, was developed by a new science called Social Physics. The discipline seeks to apply the scientific method to the study of human behavior and determines a set of “social behavioral laws.” Social Physics, the brainchild of Alex Pentland of MIT, means to take advantage of the growing abundance of social data. Just as physicists were aided by innovations which allowed more detailed observation and exacting measurements of life, earth and space, so to the social physicist taking advantage of ever more available economic, social and political data. As Physics developed laws governing matter and energy, Social Physics seeks to establish “mathematical relationships that emerge whenever a large number of people operate in the same space.”


Cryptocurrency, the newest investment on the planet, has attracted investment interest from a large number of people in a relatively small space. Cryptocurrency is at the other end of the risk spectrum from US Treasuries, and a minuscule market by comparison, but seems to have received no less attention from experts, analysts, pundits and the media. In February Vitalik Buterin, the 24-year-old co-founder of Ethereum (ETH) warned in a tweet, “ Reminder: cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time.” Also in February Steve Strongin, head of Goldman Sachs global research, wrote that cryptocurrencies have no “intrinsic value” and compared the cryptocurrency market to the “internet bubble of the 1990’s.” Economist Nouriel Roubini of NYU’s Stern School of Business recently called Bitcoin the “biggest bubble in human history.” Mr. Roubini, also known as “Dr. Doom,” thinks the price of bitcoin is going to fall to zero.


Cryptocurrency optimists include Kay Van-Petersen of Saxo Bank who in December of 2016 said that bitcoin would double its price in 2017—bitcoin realized that prediction with a price of $20000 in May. Ms.Van-Petersen now says bitcoin is headed to $100,000 in 2018. Chuck Jones, a Forbes contributor, lists nine reasons why bitcoin could surpass a $100,000 market price. Number One on that list is that there will never be more than 21 million bitcoins in existence. The mythic Satoshi Nakamoto wrote that numeric limit into the original bitcoin whitepaper comparing its preprogrammed scarcity to the natural rarity of gold. If bitcoin were to equal gold as a store of value, each bitcoin would trade at a market price above $400,000.


It is human behavior compelled by emotion which drives price changes in all markets for items of value. Fear, Uncertainty, and Doubt (FUD) cause sellers to sell, and Fear of Missing Out (FOMO) compels buyers to buy. Gold, Dollars, houses, and bitcoins hold the value they do because human beings constantly mediate those values at auction based upon individual perceptions of value. Rather than listen to those who study market movements, observe the behavior of crowds who move the markets.