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Dr. Bitcoin, MD 1y ago

How high can bitcoin price go?

I have a reasonable answer to that…

First two assumptions:

1) bitcoin will continue price rise for next 10-100x gain like the first 10-1,000,000x price gain

2) current buyers will buy bitcoin until bitcoin price rises enough to bring effective rate of return down to 7-12%

From 1) power law model predicts bitcoin price will be 2^5.7 x $80k in 16 years…that’s about $4M

From 2) 16 years at 7% or 12% (1.07^16-1.12^16) means a total gain of 3-6x

1) / 2) give us a price range of $700,000 - $1,400,000

If you buy below $700,000, prior bitcoin price history would estimate a better than 12% rate of return. If you buy over $1.4M, you’re expected rate of return is less than 7%.

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Discussion

Allen 1y ago

Only 4 million in 16 years? Way too low. Try 16 months

Dr. Bitcoin, MD 1y ago

$4M is what one would expect if they expected past to predict future. You do this by linearizing bitcoin price time curve by taking log of price and log of time…then draw that straight line a little longer and undo the logs. I don’t think calling this price way too low to be reasonable. It’s literally extrapolating linearly.

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

If your investment hypothesis relies upon unprecedented bitcoin price rise, you might consider your risk tolerance because I doubt you’ll do better than the past. And if you want to extrapolate, I’d encourage you to transform data to allow you to do a linear extrapolation rather than following some other curve.

Allen 1y ago

In the past there was such a thing as second bests. Now we live in a world with no second best. Bitcoin’s supieriority was not well understood in all its history. Any future price predictions based on price levels during a time when Bitcoin was poorly understood by 99%+ of ppl is not wise imho.

Dr. Bitcoin, MD 1y ago

Very true. This is exactly my point. My calculations of fair present value $700K-1.4M would be what one would expect if everyone accepted Bitcoin’s future price equaling model predicted price…I’m answering the question would be the max they’d be willing to pay today for bitcoin? This would make bitcoin price break the model and future forecasts couldn’t use the model anymore.

Allen 1y ago

It’s also not an “investment hypothesis” — its accepting reality

Dr. Bitcoin, MD 1y ago

The future isn’t reality, by definition reality can only be known in the present.

If someone needs $20M bitcoin in 16 years to make their investment pay off, I’d argue against making this investment. I don’t think it’ll happen.

As it is, a $4M bitcoin in 16 years is an average annual rate of return just shy of 30%. That’s Bernie Madoff Ponzi scheme territory. That’s way better than the vast majority of investment ever, but it does pale in comparison to early bitcoin.

From 2010 to now, bitcoin price has gone from about 10¢ to about $100,000, a 1 million time increase. That’s roughly an ARR of 137% over 16 years. This won’t be repeated the next 16 years.

Allen 1y ago

Ok bro lmao

jakub 1y ago

Actually, in 8 years it’ll hover around $7,000,000

Dr. Bitcoin, MD 1y ago

Can you calculate what average annual rate of return that would require? And can you find what time interval in bitcoin history that would correspond with?

Bitcoin ARR from inception until now has been about 137%…this won’t be repeated over the next 16 years.

To solve the above, your asking for a 70x return compounded over 8 years…take the 8th root of 70 and subtract off 1…you get 70%.

Expecting $7M bitcoin in 8 years is the same as expecting average annual rate of return of 70%.

OgFOMK ArTS 1y ago

How about the purchasing power of USD in 16 years? Inflation will increase the money supply. Meaning people will hold dollars to purchase durable goods or better quality goods and the "cheap" crap will increase in supply to accommodate high time preference people. Meanwhile those with new credit or stable credit will front run the price discovery of others and supply of good items will decrease as money supply expands for elite debtors.

$4M in 16 years might buy you a pickup truck, moped or skateboard.

The M2 weekly chart became monthly because even the Saint Louis Federal reserve can't track the money supply.

https://fred.stlouisfed.org/seriesBeta/WM2NS

Allen 1y ago

Obviously the number crunching that led to a 4M $ Bitcoin price in 16 years doesn’t account for accelerating debasement

Dr. Bitcoin, MD 1y ago

No, it takes in to account prior accelerating debasement only and assumes acceleration remains constant.

If there is “jerk” (meaning a change in acceleration), this will not be reflected in model extrapolation.