💡What is The Bitcoin Power Law?

Issue 127

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Today’s Bullets:

• What is a ‘Power Law’?

• The Bitcoin Power Law

• Accuracy of the BTC Power Law

• Criticisms and Bottom Line for Investors

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Inspirational Tweet:

If you’re a Bitcoiner, you may have heard a funny term floating around recently known as The Bitcoin Power Law.

But what is this mystical mathematical so-called law, and is it fact or fiction?

How does it even work, and should we be paying attention to it?

Well, even if you don’t like math or Bitcoin (😱), you’ll still get something out of the answers to these questions.

And don’t worry, we’re going to unpack all of them, nice and easy as always, here today.

So, grab your favorite cup of coffee and settle into a comfortable chair for a dive into the world of model price predictions with The Informationist.

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🔌 What is a ‘Power Law’?

Let’s start with the basics here, shall we? I mean, what exactly is a ‘power law’?

In general.

To put it simply, and without too much math here, power laws are mathematical relationships where one quantity varies as a power of another.

In other words, a change in one quantity results in a proportional change in another quantity.

For instance, if you change the length of a square box, the amount that box can hold changes proportionally (i.e., to the power of).

Small box: 1 foot tall and wide

Volume: 1 cubic foot

Medium box: 2 feet tall and wide

Volume: 8 cubic feet

Large Box: 3 feet tall and wide

Volume: 27 cubic feet

See how the volume of the box changes in proportion—and to the power of—the length?

Power Law in effect.

As far as the history of power laws, they’ve been studied for centuries, with one of the earliest recorded works from ancient Greek mathematician Euclid in the 3rd century BC.

Where else do we see power laws?

Earthquakes: The Gutenberg-Richter law describes the relationship between the magnitude and total number of earthquakes, where smaller earthquakes are exponentially more common than larger ones

Biology: Metabolic rates of animals follow a power law with respect to their body mass, known as Kleiber's law

Astronomy: Luminosity of stars follows a power law distribution

Wealth Distribution: Pareto’s 80/20 rule about wealth distribution (top 20% hold 80% of wealth) is a classic example

City Sizes: Growth of cities often follow the power law known as Zipf's law

Internet: Node structures of the World Wide Web follows a power law, with few highly connected nodes (hubs) and many nodes with fewer connections

Social Media and Viral Content: The sharing patterns of content often follow power laws where few pieces of content go viral, while most remain relatively obscure

And of course, there is the application of power laws to the rate of adoption of new technology.

The renowned technology adoption S-Curve:

In tech adoption, in particular, early adopters and influencers play a crucial role in the rapid spread, while the majority adopt later, following an exponential growth curve.

A similar type of adoption growth curve has been applied to Bitcoin, and the result is a powerful argument for predicting the future adoption—and therefore price—of Bitcoin.

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🤓 The Bitcoin Power Law

By now you’ve likely seen this chart or a version of it:

Which is just a dynamic version of this original chart:

OK, who created them and WTH do they mean?