Stefan21 (@stefan_21) on getquin

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Power Law: Can a mathematical model predict the future price? 📈🔮

Today we're talking about the so-called Bitcoin Power Lawor in German, the power law of Bitcoin. This model attempts to explain the long-term price development of Bitcoin using mathematical principles.

But is it even possible to predict something that is based on the supply and demand of people - like the price of a good?

What is the Bitcoin Power Law model?

The Bitcoin Power Law is a mathematical model that describes how the price of Bitcoin grows over time. It is based on the power law, a concept that is used in many areas of nature and science. Simply put, it shows how one quantity (e.g. the price) grows as a power of another quantity (e.g. time).

Power laws occur primarily in nature, such as in the growth of organisms, and in networks.

Giovanni Santostasi and the Bitcoin Power Law

The astrophysicist Giovanni Santostasi was instrumental in developing and popularizing this model. He (and other physicists) have established that Bitcoin has approximately followed such a power law over the last 15 years - which is quite remarkable.

His scientific approach shifts the focus away from a financial instrument to a networkthat is similar to a living organism grows. This ties in directly with the idea of "Metcalfe's Law", which describes the value of a network in proportion to the number of participants squared. Bitcoin as a network therefore becomes exponentially more valuable with each new user - with decreasing growth.

But what exactly does this mean?

You can think of this model like a big ball of yarn. It all starts with the first user using Bitcoin and thereby giving it a certain value. The more users there are, the higher the value of Bitcoin rises. A higher price in turn attracts more miners, who invest more resources in mining. This increased activity leads to an increase in mining difficulty, which means that miners need more income per coin. At the same time, the growing hashrate (computing power of the network) increases the security of Bitcoin, which in turn attracts more users - and the cycle starts all over again.

Santostasi calls this feedback loop between price, miners and users the feedback logic. He describes it using a mathematical model based on exponential growth.

If you plot the Bitcoin chart not linearly as usual, but logarithmically (on the x & y axes), you can suddenly see that Bitcoin has been following a line with over- and under-performance so far.

-> This line (green) is the Bitcoin Power Law💪

(Source: https://charts.bitbo.io/long-term-power-law/)

Does this now mean that we can predict the Bitcoin price for all time in the future?

I'm not entirely convinced yet, but at least there are already websites like https://bitcoinfairprice.com/where you can select any date in the past or future and then get the "fair value" of Bitcoin for that date based on the power law model😅

So when will we reach the $1 million mark according to this model?

The answer according to the power law is: 2033

For the next 10 years, it would look like this:

2024: $68.434

2025: $99.794

2026: $142.232

2027: $198.653

2028: $272.486

2029: $367.749

2030: $489.108

2031: $641.941

2032: $832.407

2033: $1.067.513

2034: $1.355.187

Conclusion

The Bitcoin Power Law shows how Bitcoin grows exponentially through network effects and self-reinforcing processes. It is a useful tool to understand the long-term development of Bitcoin, but should not be taken as absolute truth.

I always find it very difficult to make predictions for the future based on the past. After all, there are countless external factors, such as regulations, global crises, etc., which all have an influence on the price.

Nevertheless, it is interesting that this model can at least be applied to Bitcoin's recent past.

I deliberately wanted to keep this article a little shorter. If you want to find out more about the Bitcoin Power Law, I can recommend Giovanni Santostasi's blog page:

https://giovannisantostasi.medium.com/the-bitcoin-power-law-theory-962dfaf99ee9

What do you think, is there anything to the Bitcoin Power Law or is it only valid again anyway until the price does something completely different? :D

Have a nice afternoon/evening!

#bitcoin

Nico Uhlig@RealMichaelScott

12H

In principle, the model fits so well in the past because it has of course been fitted in such a way that the deviations from the previous data are minimal. This allows you to "prove" any supposed correlations, especially if you allow for axis scaling.

However, it is true that, by nature, networks tend to satisfy exponential laws. Whether the price then also shows long-term exponential growth has nothing to do with this in the first instance.

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Cryptoking@Testo-Investor

Finally a post that I could read in full WITHOUT scrolling down 3 times :D The price forecasts would be great

Beeftek@Beeftek

Instead of a ball of wool, you can also use a snowball. In other words, a snowball system that will eventually collapse if no new users are generated.

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PInvestor_El_Joker@PInvestor_El_Joker

11H

Thanks for sharing! The Bitcoin Power Law is definitely an intriguing model. While it offers a unique perspective on Bitcoin's predictability, it's important to remember that the crypto market is highly volatile. Historical trends don't always predict future outcomes and mathematical assumptions don't always align with the human factors and economic variables influencing Bitcoin's market. This could lead to unrealistic expectations among investors.
Still, it's a fascinating framework to consider. Let’s see what exciting future awaits us! Hodl!

Marvin@SchlaubiSchlumpf

In reality, such curve descriptions always have the problem that they only work within the set limits (with standard deviation). For fitted curves, this would be between the first and last value.

Of course, a regression curve like this is a more intelligent approach than guessing, but theoretically we could have an external influence at some point, as you say, which results in a tipping point and suddenly an exponential function with a*e^-(b*x) takes over.

A similar problem to trained neural networks, which only work well if the input is within the trained data sets.

Vise72@vise72

Thank you. Another interesting article. But as you say, I can't imagine that the price will be predictable in the future. Especially as the benchmark - i.e. Fiat - is also constantly fluctuating.

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