8 Comments
Jun 4·edited Jun 4Liked by Stephen Perrenod

I'm pretty surprised your work hasn't received more attention. It definitely should. Came here from one of your recent tweets, so thanks.

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May 31Liked by Stephen Perrenod

Thank you for your thoughtful analysis of the Power Law and its effects on inflated dollars, and also such a long term perspective — most analysis stops around twenty years out.

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May 4Liked by Stephen Perrenod

Thank you. Your work is fascinating and will be historical in the context of time. Truly innovating. I agree from all angles of the model, intuitively, adoption, saturation value, etc. The only thing that has jumped out to me is my theory that the "Fair Value" is not the real price. For example, today's value approx $55k, but the true PL is the "Downside Model" about $31k today. I believe the downside/floor model is actually the true Adoption model and the Power Law will "stabilize" at this value. So your $55m future value is roughly 27.5m or something. It's why we see diminishing bubbles above and stable values at this level.

It seems to be like this is adoption, everything above this floor is speculation. Have you done any math to investigate this? Best wishes.

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May 4Liked by Stephen Perrenod

this also means the CAGR is the same if you view it through the lens of the downside model. Therefore I am valuing my holdings and doing my risk management at the downside model but then the CAGR scales the same.

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author

Thanks for the comment. No, I don't think that's correct. The power law regression tells you what the trend fair value is. It can move above or below. You have to regress against all data points, not an artificial selection. The floor about one sigma below is not the fair value, neither are the two sigma bubbles above. Right now the regression says the fair value is $55,000 or $60,000 (depending on whether I use monthly data or half-yearly data) so today's price is just a bit above. And that is with R2 of 0.95 and a strong F-test result 2382 with 169 monthly data points, the regression tells you the fair value, and that is the blue line of Figure 3 in the article. That's the math to investigate, have regressed many times, every new month. We let the data tell us the fit, we don't pick lows and regress against only those.

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Do you think it's reasonable to look more at the floor one sigma below fair value as a conservative estimate of what bitcoin will be priced/valued at in the future?

To me personally, I think that line is more interesting, since it continually hits and rides that floor price during bear markets. When I project out to where bitcoin might be on a given year, I mostly like to look at that floor price, to be conservative.

One - because hopefully that would be the minimum price during any bear market and we don't know when those bear markets may come and two - it's not impossible for the power law to shift down lower than the 5.5 or 5.8 power or thereabouts right?

I'd just rather be surprised on performance to the upside than to count on trend value and be "disappointed" that price ended up being close to the current floor model one sigma down vs the current trend line. Disappointed in quotes because returns from current trend line to a future floor price is still pretty good, if it's at least several years out.

Thanks for the articles and tweets. I'm loving your work and glad I found it. I discovered Giovanni's work back in December before it blew up, then found hcburger's article right after that, then found you through Fred a couple months later.

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May 4·edited May 4

Thanks for the reply. I know Bitcoin, but my math is only up to university calculus. I'm learning a ton from your feeds, thank you.

I got into Bitcoin a long time ago for much more than "number go up". But this is so fascinating to quantitatively validate the interconnectedness of the system in a way that before was only intuitive or esoteric to a very few. I think your use of block time is much better than Gregorian time for this reason.

I would love to know if you would say Bitcoin is a discovery or invention? It seems suspiciously divine, and I'm a natural skeptic.

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author

I think Satoshi was a “giant standing on the shoulders of giants” to paraphrase Newton. The various technology and cryptography breakthroughs came over decades including proof of work from Dwork and Naor in 1992 and the various e-cash proposals. One needed reusable POW, otherwise you were making one time postage stamps not money and that was not developed until year 2004 by Hal Finney. It was the last major building block. The backdrop of monetary instability with Great Recession was an encouragement it seems. The difficulty adjustment was necessary to account for growth and Moore’s law for tech speed up. The finite money supply with four year Halvings was inspired and a millennial breakthrough in monetary theory.

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