Bitcoin "Should" Be Trading At $80,000

A simple equation predicts bitcoin's price from a single variable. Either the model has now broken, or much higher prices can be expected.

When does a model forecast higher prices, and when is it broken?

A simple equation that models the price of bitcoin in terms of a single variable, time, suggests that BTC might be undervalued by around 35% at its current price.

The chart shows the price of bitcoin (blue) since it first began trading in 2010, against a red "baseline" curve proportional to the square root of time in days since then: Price = kโˆšt - n

A 200-week moving average (yellow) is also included for reference. The 200 WMA has historically proven an excellent time to buy bitcoin.

The chart draws heavily on the work of Timothy Peterson, whose elegant models demonstrate how Bitcoin network size and price grow according to simple mathematical rules, and reflect systems in natureโ€”including the spread of viruses.

Bitcoin Spreads Like a Virus
In this paper we provide a mathematical derivation that links traditional time-value-of-money concepts to Metcalfe value, and use Bitcoin, Facebook as numerical

The equation for the above chart was formulated in 2019, and historical price data was drawn from Investing.com.

Model Insights

Aside from the brief black swan of the March 2020 COVID crash, price does not break below the red line until June 2022, when the collapse of Terra/LUNA catalyzed an initial capitulation. Coincidentally, this is also the first time that bitcoin trades under its 200-week moving average for any meaningful length of time.

While bitcoin has now recovered above its 200 WMA, it has not yet regained the model's red line, which currently stands around $80,000. The baseline crosses $100,000 in July 2024, and hits $220,000 (an often-repeated target for this cycle) early in January 2026.

The equation proves remarkably accurate for modeling the "baseline" (lowest) price of bitcoin at any point in the cycle, for at least the first ten years. Should the model hold, price would accelerate back above the line before long. The question is, has it now broken, or will the same equation prove accurate in the future?

All Models Are Wrong, Some Are Useful

First up, it's worth saying that all models have to break down at some point; a virus that continued to grow exponentially would quickly take over the entire universe. (While Bitcoin consuming the fiat universe is a popular topic, you can stretch an analogy too far.)

Additionally, log lines cover over a multitude of noise, apparently working well for extended periods merely due to the fact that deviations become practically invisible when observed from a viewpoint orders of magnitude higher up the scale.

Peterson also notes in his Virus paper that no model can reflect market manipulation, which is arguably what happened in the last cycle. Without the fraud and unbacked leverage of FTX, 3AC, Terra, and others, where might bitcoin have topped? Where might it have bottomed?

On the other hand, the best and most reliable indicator of bitcoin's price is... bitcoin's actual price. Manipulation or not, it is what it is.

The question of whether this model will hold true for the future is, unfortunately, something that can only be determined with hindsight.


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