Beyond the Bubble: Unveiling Bitcoin’s Unstoppable Ascent to $1 Million as Mapped Out by Power Law Analysis
In the first part of this series, I explained the concept of the power law and how it can be utilized to estimate the fair value of Bitcoin:
In the second part, I demonstrated how deviations from the fair value of Bitcoin can be used to estimate subsequent returns:
In this article, I’ll provide some price projections and try to explain the unique growth structure of Bitcoin based on the power law.
Power Law Does Not Imply Exponential Growth
First of all, power law does not imply exponential growth. This is a common misunderstanding that most people fail to grasp.
The picture below depicts three different functions: y = 2*x, y = x², and y = 2^x. These represent linear, quadratic (as in the case of power law), and exponential growth, respectively:
In a plot where both axes are linear, the linear function is a straight line, whereas the quadratic and exponential functions grow much faster than the linear function.
The following picture depicts the same functions with a logarithmic y-axis:
Now, this time, the exponential function becomes a straight line as expected, since the logarithm is the inverse of the exponential. The quadratic and linear functions increase more slowly than the exponential function.
So, the quadratic function increases faster than the linear function, but slower than the exponential function. You are probably familiar with the Bitcoin Rainbow Price Chart [1]:
The Bitcoin Rainbow Price Chart also uses a logarithmic y-axis. See the similarity? It resembles the quadratic function (power law) rather than the exponential function. It is slowing down with a logarithmic y axis. The Bitcoin price chart only becomes linear in a log-log plot where both x and y axes are logarithmic, as depicted in the chart below and in the first part of this article series:
Bitcoin Fair Value Projections
What are the implications?
The most important implication is that it takes longer and longer for Bitcoin’s fair value to multiply, although the expected price trajectory is still impressive.
The following are the fair value projections of Bitcoin with current data:
It takes 265 days for the fair value of Bitcoin to go from $0.10 to $1.00, whereas the next proportional increase takes 397 days. And, it takes longer and longer for Bitcoin’s fair value to multiply in the same proportion. The predicted annual compound growth rate from $100,000 to $1,000,000 is still impressive at around 33% whereas this was 52% from $10,000 to $100,000 and an incredible 2278% from $0.10 to $1.00.
Remember, these projections are for the fair value of Bitcoin, not the actual Bitcoin price. The price of Bitcoin can be lower or higher than its fair value. Therefore, Bitcoin may reach $1,000,000 earlier than 2033.
A More Detailed Look…
Giovanni Santostasi, who came up with the original idea of applying power law to Bitcoin, has more detailed predictions that take into account the fluctuation of Bitcoin price around its fair value as well as support and resistance lines. Using a chart inspired by his model arrives at two conclusions [2]:
“The price of Bitcoin is projected to surpass $100,000 between 2021 and 2028, and once it reaches this threshold after 2028, it will never fall below that value.
Additionally, the price is forecasted to exceed $1,000,000 per Bitcoin between 2028 and 2037, and similarly, once it achieves this milestone after 2037, it will never dip below that amount.”
We’ll see…
References
[1] “Bitcoin Rainbow Price Chart.” Accessed: Jun. 04, 2024. [Online]. Available: https://www.blockchaincenter.net/en/bitcoin-rainbow-chart/
[2] “Bitcoin long term power law.” Accessed: Jun. 04, 2024. [Online]. Available: https://charts.bitbo.io/long-term-power-law/
