What is the Bitcoin Power Law Theory?
The Power Law Theory
The Simplicity of Bitcoin's Long-Term Price Equation
The theory is based on the discovery that the price of Bitcoin follows a precise mathematical pattern over the long term.
Price ∝ Time⁶
This equation exemplifies a power law, a relationship where y ∝ xⁿ . Power laws describe a wide range of phenomena, underscoring their fundamental nature.
Significance of Bitcoin's Power Law Behavior
It is remarkable that Bitcoin's price action follows a power law, as these are not just ordinary equations. Power laws possess unique properties that signify precise, stable, and predictable underlying processes. Consequently, Bitcoin’s long-term price behavior can be considered both predictable and stable.
Ubiquity of Power Laws
Power laws are pervasive across both natural and social phenomena: planetary motions, gravitational forces, growth patterns in animals, and structures like teeth, horns, and shells all follow power laws. Similarly, urban studies show that the distribution of gas stations, GDP, and crime rates, as well as the pace at which people walk in cities, exhibit power law dynamics. Networks particularly display power law behaviors frequently.
Given that Bitcoin is a network, its adherence to power law behavior is not just predictable but also profoundly resonant, aligning it more with a force of nature than a mere asset.
The Exponent as a Fingerprint
The value of the exponent in power laws serves as a DNA or fingerprint for the phenomenon in question. For Bitcoin, the exponent 6 is derived from two other observed power laws in on-chain data:
a) Viral-like growth of addresses over time, reflecting network adoption:
Addresses ∝ Time³
b) Price's quadratic response to adoption, aligning with Metcalfe's Law, which theorizes that the value of a network scales with the square of its connectivity:
Price ∝ Addresses²
If we approximate that Bitcoiners are synonymous with Addresses, we arrive at:
Price ∝ Bitcoiners² ∝ (Time³)² ∝ Time⁶
In addition a power law relationship exists between Price and Hash Rate:
Hash Rate ∝ Price ² .
This is relationship is due to the interplay between Difficulty Adjustment, Moore's Law and the halving events.
This not only models Bitcoin's behavior but provides a comprehensive theory:
What Bitcoin is: A network.
What drives its growth: Viral-like adoption and information transfer.
How price responds to adoption: Metcalfe-like valuation based on network activity and interconnectedness.
The relationship between Energy and Price: the system grows the energy stored in the system with the square of the price. A doubling of the price demands four time the investment by miners in terms of energy committed to the network.
This theory elegantly and simply encapsulates the essence of Bitcoin.
Predictability of Bubbles
Bubbles are also predictable within this framework, exhibiting precise patterns around the power law. Notably, after peaking during bubbles, the price invariably regresses to the power law support level, which acts as an almost inviolable floor—even during events like the COVID pandemic, this level was not breached.
Strategic Investment Insights
Understanding the cyclical nature and the deviations from the trend within this power law framework allows investors to make educated decisions about when to take profits or reinvest. By capitalizing on this knowledge, one can potentially increase their Bitcoin holdings by timing the market cycles effectively.
About Us
Bitcoin is a Power Law
Bitcoin is a Power Law
Bitcoin is a Power Law
Bitcoin's behavior is predictable over the long run. Its long trajectory follows a precise mathematical path called a Power Law. We created models of bitcoin's current and future behavior to help you make smart decisions.
The Bitcoin Cycles
Bitcoin is a Power Law
Bitcoin is a Power Law
Bitcoin goes through cycles that are very predictable, the waves of BTC. The market reaches all-time highs during these cycles and then it corrects itself. Use our proprietary models to time the market to do weighted Dollar Cost Averaging (DCA) , sell at the top and buy at the bottom, leveraging our knowledge of the BTC cycles.
Cryptocurrency Bots
Bitcoin is a Power Law
Cryptocurrency Bots
The Bitcoin cycles can also be used to estimate when other cryptocurrencies are rallying and when it is time to devest and take profits. Use our automated systems to help you select suitable cryptocurrency portfolios timed with the BTC cycle.