The way that power growth manifests itself is, in the case of Bitcoin, is it has started
out higher in the early years.
It was, you know, a thousand percent a year, right, on a curve, on a trend.
Now it's down to about 40 percent per year on a trend.
I think that it's totally plausible that the trend could change.
I also think it's plausible that Bitcoin could change other trends in the world.
Common sense tells us constant growth is faster than proportional growth.
It's going to be good.
It's going to be good for Bitcoin holders.
On the one hand, the number go up. But on the other hand, this is where you get into the idea of, you know, what does that actually mean? Is TradFi co-opting the system? Can anyone claim any Bitcoins on an ETF? Can you withdraw Bitcoins from exchanges after 10 years? There are a lot of things that could play into this. And by the way, if some of those play out, perhaps as some entrenched players in Bitcoin want, then I think, yeah, Bitcoin could go exponential. It could match. It could mirror the exponential growth rate of the rest of the financial system.
Matthew, welcome to the show, man. One of my favorite quarterly interviews that I do.
You know what? Last time we were on the show, we were talking about the power law,
and we were pretty much at the bottom of the trend. And I think we were kind of calling it
the bottom, if not close to the bottom. And then since then, Bitcoin price has gone below
the power law trend. And I don't know, does that mean it's broken? Is the power law broken?
Yeah, great question, Danny. You know, I come on your show every quarter or so and talk about this stuff a lot. And for old listeners, maybe it's a little bit repetitive, but just very, very briefly.
when we're doing trends like this and i've been doing it for a long time you know a little bit
less than than giovanni he's kind of got his name to the power law uh he first posted it on reddit
in 2018 fall something like that on the price i did it in around december of that year but
it's important to remember that we're not trying to model like channels or elliott wave stuff
these lines on charts, ABC corrections. If this level of support breaks, then it's over for this
amount of months. All of that stuff can be done. I mean, people can definitely do that and they do.
And there's no shortage of articles of that on TradingView or YouTube thumbnails. But
with the general idea of what I'm trying to do when I look at the price or the money supply
is I'm just trying to gauge a relative level of change or the relative growth and see how the
asset is sitting, you know, relative to the range of observations in the past. So just looking at
the statistical probabilities, it can always be that it sort of goes lower. And we can look at
some good charts today to talk about that. But it's not anything where you say, okay, if it goes
past this level of support, it's definitely broken or it's over. So another way to look at that
is you just have to see if Bitcoin is following this power law. And again, just quick, quick,
quick refresher is a power law is not constant growth. Constant growth, like we talk about with
our broker, or if you're looking at the stock market or the bond market, you're looking at bond
yields, yield to maturity, IRRs, or just returns, right? Those are constant returns that you expect
to get every year. So 10% a year, 12% a year. And it's actually getting a little bit faster,
which we can talk about on the show as well. But in general, it's constant growth, right,
is what we try to achieve in our stock portfolios. With Bitcoin, it's interesting.
If you look at the price over a long time, you have a sort of very slightly decelerating rate
of growth. So it's not constant. But there is still a relationship here and it's a power
relationship. So it's actually the rate of growth is proportional to many things. It's actually
proportional to addresses, to hash rate, and it's also proportional to time, to actual existence of
time in the system. How long the system has been around. Bitcoin has a proportional relationship,
say, till the next doubling, that in this particular case, that proportionality does
stay constant. And the number is about 13% a year. So again, I just try to put that broad,
broad overview and talk about like the power law breaking. I think it gets people that are even in
the space like looking at this from an analytical view of the power law, that kind of wonder, okay,
did the Bitcoin gold power law break because that thing looks really skewed? And still the answer is
No, because relative to all the other trends that we can judge Bitcoin on, that's an exponential
trend, logarithmic, linear. Bitcoin is totally, totally on par with a power curve or a power
trend. I know a lot of people get triggered when you say power law, but that's the scientific name
for it. But in any event, it's a sustainable growth rate and we can look at it. It's certainly
relative to the probabilities, the range of observations in the past, the probability is
very, very, it's showing not a lot of likelihood that it breaks too much lower. But again, it can
always surprise us to the downside of the upside. So basically, that's my overall disclaimer. No,
it's not at all broken. And I can try to show that with some just simple, simple charts here.
Okay. But before we do get into the charts, one of the reasons that people have sort of PTSD
around a lot of these things like the power law is because of what happened with stock to flow and
how people became very dogmatic and never admitted that that whole model broke. What would have to
happen for you to say the power law is broken? Is there something that can happen that breaks it,
in your opinion? Yep. Good question. Great question. And again, even though I've been
tracking this one for a long time, I've also been tracking Bitcoin as base money for a long time,
looking at these major sort of macro trends, money supply versus Bitcoin UTXOs, the values of those
things. There's going to have to be a lot that would happen to say that it's not a power law
anymore. And again, it's totally possible. I'm not at all married to the idea that it needs to
stay a power law or a power curve, power regression, however you want to say it.
The challenge with throwing a lot of different models out here, and you'll see it, by the way,
anytime you see like a straight line, people trying to take a straight line to Bitcoin's trend
and the chart is only log linear, all right, that means log scale on the Y, linear, just normal time
on the X axis, they're trying to shoehorn it into exponential growth. And it just doesn't do that.
So again, I would say that. But if you would look at other types of models like stock to flow,
they were also trying to shoehorn in some exponential growth factors into the price
when Bitcoin doesn't do that.
So it's a bit more confusing with stock-to-flow
because in fact, it is a power law.
He used the power equation to run through it,
but he was running it over the stock-to-flow value over time,
which in itself is about a 16% per year negative kegger.
If you wanted to average it out,
the supply of bitcoins decreases 16% per year.
And it's not even average, right?
It's not a constant 60%.
We know that it halves every four years.
So he's trying to shoehorn in a power law
over some features of Bitcoin, which are exponential.
And that's why it didn't work.
Again, it might be a little bit technical there,
but I've talked about it a lot as well.
It's just, you know, he was trying to compare,
say the Bitcoin, like back when he was doing these early models, 2019, 2020, he was trying to compare,
say, the growth of gold or the growth of silver to the growth of Bitcoin.
That is actually the units that came out of the ground in gold and silver's case or the UTXOs
that would come onto the scene every 10 minutes. Everybody knows intuitively that Bitcoin's rate
of growth declines, right? It declines there. It actually, again, that might even sound like
power law when I said that, but it's an actual exponential rate of growth. The halving every
four years, basically, it's a negative 16% per year on average. And he was trying to compare that
to something like gold and silver, which when those ounces come out of the ground, 1.8% in
gold's case, and actually 1.5% in silver's case, even less, those are exponential factors. They
come out every year, about 1.5% for silver, 1.8% for gold. So they're just by nature simply
incompatible with what Bitcoin does. And so there was a lot of confusion around that model. And it
just, like I said before, you're trying to shoehorn in. He was actually using a power equation,
But he was using it with this, a lot of features of Bitcoin that were exponential and it just wouldn't work. Whereas the power law, which we talk about with Bitcoin, we're just taking it purely on the signal that Bitcoin produces, whether it be addresses, whether it be hash rate, whether it be price.
we're not even taking into account the having. We're just looking at the way that price grows
over time or the way that addresses grow over time. It's like a pure signal, single variable,
single unknown variable and running it. And the regression, the relationship is holding up very,
very well. So this is kind of, these are some of the answers that I would get there
to that question. I don't know if that fully answers it, if you have any more
I'm happy to follow up on.
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actually have to happen for you to say, yes, this is broken. Yeah. It's going to break or not be a
model that is applicable if another traditional basic scientific regression fits the price
the address growth the hash rate better um now there is a grand theory that i have around a lot
of this stuff uh it primarily resolves around uh revolves around exponential growth and power
growth mostly because those are the two types of growth that uh well really it's just exponential
growth that is most prevalent in the financial world. And that's primarily driven by the interest
rate. So your bank loan, your mortgage, whatever you are paying on capital that you borrow to
acquire assets, whether it be a house, car, something for your business, that's exponential
growth. So when you have bank loan, that's 5%, that's fixed constant growth that you got to pay
per year. That's your cost. That's the bank's income. And of course, there are spreads on that.
And yes, the rates can go up and down. That's true. They do change with the market. But as time goes on, whether it's a little bit up, a little bit down, you're still paying this sort of constant fixed rate of capital. And so it is hard to imagine. And I don't want to go too far off on this tangent with the answer, but it is hard to imagine if Bitcoin's growth right now.
So basically, the way that power growth manifests itself is, in the case of Bitcoin, is it has started out higher in the early years.
It was, you know, 1,000% a year, right, on a curve, on a trend.
Now it's down to about 40% per year on a trend.
There will come a point, and this plays into something that, you know, Michael Saylor talks about, is we all know basically Saylor's cost of capital.
We've seen that the market's trying to liquidate Saylor in the last couple weeks, right?
With Stretch really being stretched as far as keeping the buck.
And his cost of capital is 10%, 11%, whatever it is, right?
But that's a fixed cost of capital.
And as long as Bitcoin on a trend grows more than that,
Saylor is fine.
His shareholders are fine.
Strategy is fine.
But if Bitcoin ever started to grow less than 10%,
Saylor's going to have to shrink the cost of his capital.
or he would start to have to shed some coins and he would have some liquidity problems.
He's a long way from that. And I cannot just, just to back of the envelope, even though Bitcoin
on a trend is growing about 40% per year and declining, that means it's doubling every two
years, 40% per year is doubling every two years. But that, that growth is declining in a, in a,
in a compound fashion, like the rate is shrinking and the doubling time is increasing, right?
But it takes a long time to get to that 10% as we're all modeling it in the power curve space at the moment.
It's going to take to about 2070 to get there.
The fireworks are going to happen much sooner.
I think probably in the 2030s up to 2040 for a variety of reasons.
We could talk about this.
When you say fireworks, what do you mean?
Yeah, so I'm already getting ahead of myself sort of in the grand theory.
And, you know, we can look at some charts to illustrate this.
Should we come back to that then?
Because I have some other questions that are maybe a bit more of the groundwork before we get to that.
Yeah, yeah, we can do that.
But again, just to let me make sure I answer your question, though, because about breaking or not, whatever.
If it stops being a power law visually on the chart, if the R squared starts to shrink,
if something like an exponential trend looks better over the curve, over the price action of Bitcoin or the address growth or anything,
then Bitcoin would stop to be a power law.
But we're nowhere near that right now.
nowhere near that right now. So the one thing that I want to try and get to the bottom of,
because we've spoken about this before, but I don't know if I fully understand the reasoning,
is you say that Bitcoin can't follow an exponential trend, whereas traditional financial
assets do follow an exponential trend. Why is that? Yeah. Well, I haven't said it can't. I just
said that it is not. And that's the interesting thing. So again, Giovanni's been following this
since about fall of 2018, myself, at the end of the year, 2018.
And at the time, that was the best looking trend that would fit.
And it wasn't even hard to really find that.
You just, you know, you can plot it on Excel and look at the trend automatically on the
curve, right?
Or Google Sheets.
In the early days, like 2014, 2013 on Bitcoin Talk, there was this kind of relatively well-known
account called Tro Lolo Lo. And he was doing the same thing. I was trying to sort of update the
work that he was doing. But he was actually finding a logarithmic trend, which is actually
more explosive at the beginning and usually gradual, more gradual growth at the later
periods of the observations. It's a little bit different than power law. But brass taxes,
Bitcoin at the early, early days kind of did look like that with the explosive growth.
And then from about 2016, 2017, it started to settle into this trend, which is very sustainable,
sort of gradually decelerating growth every year, but still very high growth for anybody.
And by the way, if you catch the bottoms and then it gets back to trend, you can get well
over that, which we can look at just for fun, some scenarios.
that's an example already right there where Bitcoin seemed to be following one trend and
it actually turned out it was following another which is power trend and I'm totally open by the
way that it could follow an exponential trend in the future and by the way that is a very plausible
scenario in my view considering the rest of the financial world follows exponential trends we have
all of our interest rates on our credit which are exponential trends and it really it does come you
You know, Saylor has this 10% cost of capital that everybody knows about.
It does play into sort of my grand theory about how it could all work out, which, again, we can table towards the end of the episode once we look at some charts.
I think that it's totally plausible that the trend could change.
I also think it's plausible that Bitcoin could change other trends in the world, which would probably be the more cypherpunk interesting view.
But bottom line of all this is I'm just trying to look at this through the lens of more statistics and math rather than kind of, you know, one off blog posts or whatever YouTube thumbnails, because I've been I've been charting this stuff for a long time.
And trust me, I'll tell you if I notice that it's it's breaking.
I like the idea of Bitcoin pulling the financial world like that.
I guess that is Bitcoin eating the financial system is it pulling everything into its time time preference.
Yeah.
And I can explain that via the math.
So I think that would be...
Let's get into the chart.
Can you pull up and we'll go through it?
Yeah, absolutely.
So here's a simple one.
I've shown this in a variety of ways before.
This is just even simpler
because I've also shown this with stock to flow,
but I'm sort of redoing my system
so I don't have it at the moment.
So here I'm showing you the price of Bitcoin
up until today as we speak.
Everybody knows this chart, log linear. This is log linear, right? And as you can see, it looks
kind of like a rainbow, right? It doesn't look like a straight line, but I'm showing you, I'm
shoehorning in an exponential trend. So the exponential trend, for those that remember,
right? It's a straight line on log linear. So here's the exponential. When I put it on,
straight line. But this curved line is the power curve. And yes, we are well below it. We are well
below it, all right? In the past, we've also been well below it. We've also been well above it.
But if you just look, just use your eyes, you don't even have to look at the map.
You can see the nice rainbow power trend looks much better on Bitcoin's price.
And when we say Bitcoin's price, it doesn't just mean price.
It means supply, demand, the interaction of actors in the market.
You know, it can be a proxy for adoption itself.
So it's a lot.
There's a lot going on when we look at price versus if I put on exponential and let's just
even take the power curve off. Do you think that looks better or worse? Definitely worse.
And you can see it. You really can't, like you can just use the eye test for a lot of this stuff.
So we can shoehorn in exponential trends. The key is to not get too married, I would say,
to any of them. But yeah, if we just look at the exponential trend here, Bitcoin hasn't hit it
since 2022. I mean, it just clearly doesn't work. Yeah, exactly four years ago. And by the way,
stock to flow gives a very similar effect, which again, I was trying to sort of verbosely go through
that earlier. But there are aspects of Bitcoin's system that are exponential, which by the way,
the 50 Bitcoins having every four years, that is, it's a negative 16% per year. That is what
happens. It just happens in a weird way. Regardless, if you try to model that in and then stick a power
law on it, which is what he did, it's shoehorning and it's not fully scale invariant. What a power
law is, it's scale invariant. Anywhere on the curve that you pick it, the growth will be proportional
relative to where it is at that point in time. So you can just see it doesn't work.
And now let's look at the overall CAGR here. All right. I'm going to show you down here.
It's a great CAGR if we were still on it. It's 108% per year. See it? 108% per year. Okay.
And what this is saying is any point on the exponential curve that we would pick,
it doesn't matter where, you would grow at 108%. If you do that present value,
future value calculation that finance people know how to do, it will be 108. It just doesn't do that.
So a much better model is a very simple power curve. All right. So if we take off exponential now, we can see it tracks it and we'll go into the details here. But if I go down to my very simple calculations here. Now, CAGR of power is actually higher, but that's irrelevant. It's just taking the first point on the power curve. And I go back to Bitcoin P today, May 2022 till today, which the power curve is about 140,000 at the moment, $140,000.
So you can see how far under we are, right, at 62.
It doesn't make sense, right?
Because it's not a constant growth rate.
What it is is scale invariant, which we just have to look at the trailing 12 month in the power.
You see 40.2% right there, 40.2%.
That's the power laws growth rate at the moment.
But that declines every year.
And just to see as well, what does power growth look like in log log?
which means we took take all the dates which are numbers not dates you have to take the actual
numbers and starts with genesis block of one back in january 2009 you see it starts to become
almost self-evident that it's growing according to powell you see it fits very well yes we're under
but we've also been under there in the past it fits really well but you would have to say probably
the last 18 months two years is the least well it's fit in its history by the looks of it right
because it has not exploded above.
But this is where, again,
you know,
not to toot my own horn, Danny,
but I mean, you just,
people got to be,
people got to be modest here.
They got to, you know,
I was,
all right, let's just go in.
Let's go into the,
to the, to the detail.
Here's, here's one
I do all the time on my stream.
This is quantile regression.
Okay, so we're moving to just showing
the one curve, the OLS,
which is the main,
think of it as the mean regression it's basically just yeah it's it's it's analogous to the mean
now we're looking at something that uh is analogous actually to the median but it's trying to find
all different levels of of uh a certain level of price like what would be a 10th percentile zero
percentile 20th percentile uh and the 50th percentile is actually the median so that they
are slightly different it's a slightly different analysis it's called quantile regression or a
percentile quantile regression. There's two. Now I'm showing you the mean and the median.
There's just two different ways to do it. They're both power. They're well statistically significant
within each other. I mean, statistically, well, the relationship is actually statistically
insignificant. They're so close together that you could say one or the other is the best way to do
it Basically the same thing Yeah Right So can I ask you a question on this Because Like the reason I said the last 18 months two years or whatever looks the worst it looked is because if you go back to that 2017 one sure there loads of time that it well above that median line
But there's also plenty of time that it's below. And it cuts through just by eyeballing it what you would imagine to be roughly the middle.
Whereas this time, it's like at our highs, we just got above it. It looks like that line needs to be pulled down in the last two years.
Right. So this is where, again, I would say people need to be sort of modest when you're talking about YouTube thumbnails or whoever's predicting a million dollar Bitcoin, which by the way, Plan B predicted in the fall of 2025.
He predicted that the price would be that way in the fall of 2025. He did it like two years prior.
people gotta sort of not think about the clicks and think about the statistics and sort of just
at the time adaptively adjusting your view to what you see so this is what i was doing i was
looking at exactly the analysis that you said look at let's look at the q80 q90 so this what
these quantiles will do they kind of they try to find their own median kind of they they try to
take a range which would give us to the point where the median is precisely 50 50 all right so
50% observations will be below the line, 50% above.
And what they're doing is trying to find their own,
I'm using the word median,
but it's basically their own baseline
to the percentage you tell it.
So I say to the software,
again, I'm an applied statistics guy,
so I don't try to,
I used to do a lot of this stuff by hand,
actually, the power law,
but anyway, AI makes it too easy now.
So I say, give me the Q80.
Give me the quantile approximately
where I can look at this, all right?
And I'm just going to show you the Q80
versus let's say the median, all right?
So I only have the median, I only have the Q80.
So that red line slices through the data according to a power law, and it is showing you that basically 20% of the observations are above the line, 80% below.
That's Q80.
The Q50, median, 50-50.
And the OLS, by the way, you think of it more like the mean, it's slightly different.
Like I said, it's statistically almost the same thing as the Q50 over the long term.
But anyway, so here we go.
this is what I mean by people need to have some modesty. I was fully expecting on my stream. I
was talking to people. My streams are there for everybody to see. I was saying, all right,
we know about the four-year cycle, which by the way, we haven't talked about. We can get into that
because that's another triggering point for people. But we know about the four-year cycle.
We know about the power law. We know about Bitcoin's adoption. I'm looking forward to on
my stream counting the days. You can find all these episodes I did. Let's count the days
that Bitcoin was above the Q80, right? Back in 2021, 2017, 2013. Let's imagine that there's a way
to sort of, you know, get ahead of the market and do that because I fully expect it to be similar
like that. Things like hyper-Bitcoinization, all that stuff, it's nice to talk about,
but the data suggests differently. It suggests a more gradual approach.
When that did not happen, when that did not happen in the fall, right? We barely got to Q80,
you see here, and Q90, Q100 is like, just forget about. But when we were in October,
so here's August, by the way, and here's October, when we started to not hit those levels,
and really fall down. And then Giovanni had a very interesting cycle analysis, which he has
pointed, and I can, we can talk about this as well briefly. But it's basically trying to look
at, so the power law here, this is looking at the main wiggle, the main trend, right,
putting it in these straight lines on log-log.
Of course, we can also look at the cycles,
the wiggle within the main wiggle.
Giovanni, in the spring,
he made me want to try to do this analysis myself.
He did sort of a cycle analysis
where you look at the returns in log space,
which you can't see them unless you look at log space,
and you try to extract some cycles.
Still using a power law underlying math,
he found that there was a cycle about 4.2 years apart.
All right. And to me, that even further validated it. But again, he did that in like March or
February of this year. Let's still put ourselves in the mind of fall of 2020. He still had that
analysis. He was talking about it. He said there'd be a drop in November. He was right. I was
listening to him. And so I was very cautious to people. First of all, because the power law
is strong the way that it shows its bans about relative risk. Second of all, because the cycles
are a strong signal as well.
And people were very, very quick
to dismiss both of those things.
How many times did we hear
the four-year cycle was over
in the fall of 2025, right?
I think I said that a thousand times.
Right, because we had this stable,
nice growth and everything.
When really, I think in reality,
what happened,
if you just look at this is,
notice how quickly we got back
to the median here.
This was already in 2024, all right?
Early 2024.
What I think was really happening was
ETFs. ETFs were onto the scene, right? It came out in January, 2024. And I think Wall Street
started to front run this idea. Of course, Wall Street knows about the parallel. They know about
every other model that they do with their quants. So they started to think, all right, well,
this has obviously been a powder keg of 10 years, you know, politically suppressed idea,
Bitcoin ETFs. We got to front run it. You saw that there's a lot of growth and it cooled off.
And then again, a lot of growth at the end of 2024.
All right.
Both of which, by the way, are above the median.
Let's just take just only show the median, which was really elevated growth compared to, say, the last four year cycles.
Just keeping it simple, keeping it simple.
In 2017, right, we didn't get to the median until 2017.
Right.
In 2021, we didn't get to the median until December of 2020.
As I remember those days, well, COVID, everybody's locked down and all of a sudden Bitcoin prices exploding and meme stocks and everything.
But notice how the explosion comes very quickly above the median.
All right.
In 2013 as well as the year of 2013, we got back to the median.
So usually, and particularly that crypto winter, as it's called, the, you know, from 2013 top
to 2017 top, spent a long time under the median, under the power law.
And here we went deep.
And when I say here, for those that are, maybe it's harder to listen to this podcast unless
you're not watching.
But for those in that, remember the 2022, you know, SBF gift to us all of, you know, puking really, really bad in in November 2022.
Peter Zion is saying, you know, it's seventeen thousand dollars overvalued on Joe Rogan with price of sixteen thousand.
Very, very deep, deep deaths of depths of depression.
And it only took, you know, a year, basically a year, basically 2023.
And all of a sudden, 2024 is kicking off and we're back to the median.
That was a different trend.
That was a different sort of cycle within the cycle.
So you need to adapt a little bit.
And what I saw was, and Giovanni also solidified this further for me, was with it's still the overall scheme seems to be a four-year trend, which we can get to.
but we were just we couldn't stay above that that very strong ols or the median however you want to
look at it you know the ols was even breaking down further and so i was just cautious you can
find it on my streams i was saying guys like look i was hoping by this time october and november we
were going to be counting the days above these q90 bands and just you know just having fun with this
seeing okay how repeatable is this trend how strong is this trend um you know is this something
that we can sort of really, really find some signaling. And the point was, we didn't. And
there was a lot of people that were super bullish October, November saying the four-year cycle was
over. It's just completely ignoring reality. And then all of a sudden, you know, November,
we broke down below the trend itself. And then the start of the year, you know, metals are on
tear as well. We broke down very, very fast. So yeah, it's not, no four-year cycle is repeatable
in Bitcoin, but there is a four-year cycle. And if the thing is not doing exactly as you think it
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The thing that I can't get my head around
on the four-year cycle is why it would exist.
Like, I mean, you can observe it and it clearly does.
Like I thought it was going to be broken,
but I just don't understand what's driving it
because you can't really say
that the cut-in subsidy is really a leading driver of the four-year cycle anymore. Like,
I don't know what the sort of driver of that is anymore. I think you can. I think you can, Danny.
Why? It's such like a small amount of supply coming onto the market.
That's the reason that people give on the why not, right? I've interviewed these people,
I know you have, and there's plenty of people that have talked about it. Again, it's not a big
Everybody has their opinion on Bitcoin.
But look, the gold market, let me put some of my applied statistics.
And I'm interested in financial history and stuff as well.
Mining in general is a huge game for the monetary system of any society.
We have the famous case of Spaniards, Cortez and such, just stealing a lot of Aztec gold
and other gold in the new world in like, you know, Bolivia, Peru.
Now today, there was this silver mountain that when that got back to Europe, that can
cause great carnage, right?
If you overmind, if you flood the supply.
But generally speaking, if you are running a mine or close to the state, the polity,
whoever is running the system, it's a pretty good business and it's pretty good for the
state.
Again, we don't have to judge on if the state is good or bad or what becomes good of the state.
I'm just saying mining is a strong business in the history of monetary...
The civilizations that arise around money usually have to be very close to a mine.
Of course, they can overmine it.
They can have problems.
But this is the origins of the Cantillon effect, by the way, the Cantillon effect.
or you want to say it, is that those that are closest to the mine, you know, have the most power.
It's important. Now, gold. Before this huge surge in gold to $5,000 at the start of this year,
plus right in February January February of this year and say two years ago the gold mining market in totality in the whole world was about billion
And again, gold is different from Bitcoin.
Sailors made this observation many people have.
I have as well.
Gold mining is not like it used to be.
People don't try to save some of the gold.
They just want to shed the gold.
It's a revenue profit center, but it's also a cost.
So they shed the gold.
uh to cover their costs and that's it that's just how the gold market is bitcoin is totally
different a lot of miners hodl bitcoin uh it's much easier to do it's it's uh not easier to do
in the fact of mining but i mean it's easier to obviously to transfer around bitcoin is changing
the economics of mining in general just because mining is a general concept so this is also
interesting but still still to this day uh mining can always be disrupted by price and when the gold
price and the silver price went up to four or $5,000 an ounce on a trailing 12 month basis,
the gold mining industry went from being a hundred billion dollar industry to over the last couple
of years being a $400 billion industry. And still at the moment, it's over, you know,
on a trailing 12 month basis, if that $5,000 would hold, it'd get up to a $500 billion industry.
Like the oil, just for people's, another way to understand the comparison, the oil markets are
trillion dollar industry a year. Trillion dollars in revenue, sometimes it'd be a trillion five,
super volatile, super political. These are huge industries, right? And all of a sudden,
because of a 20-year spike in the gold price, gold is now a $400 billion industry, $500 billion
industry. That's going to matter. It affects everybody politically, economically, geopolitically.
Now, with all that little background, imagine applying that 20 years from now
into the Bitcoin mining space.
Imagine that we have, whatever,
400, 500 billion dollars of Bitcoin mining revenue
and then it gets halved in a day.
It's going to matter.
It's not going to not matter.
This is just a feature of the Bitcoin system
that everybody, I think, kind of wants to forget.
But Satoshi built it in and it's what we have.
It won't necessarily halve, though.
Like, if we're talking that far out,
The percentage of the minor revenue coming from fees will be much higher than the percentage of revenue coming from fees today. Today, it's largely subsidy. At some point in the future, that fee percentage has to be much higher.
The fee percentage can and will be higher for sure. But the inflation or whatever you want to call it, the issuance, the subsidy, the block reward, it's still going to be a meaningful. It's still going to be a meaningful number when we're talking about Bitcoin being, you know, 5 million, 10 million a coin.
so i get all the arguments against it i get the fact that you know many more times uh a volume
and dollar amount of bitcoins flow between minor wallets and uh or etf wallets or exchange wallets
right i get the the whole premise of the idea the bottom line is mining is an important topic
in the realm of monetary finance, monetary history.
Satoshi specifically designed mining for that reason.
And he decided to have it every four years.
It's a shelling point.
It's a shock.
So I am, again, I'm just trying to be modest about this.
I would not discount mining as quickly
as many people are apt to do in the space
just because nominally right now, right,
it's much smaller than say 50 Bitcoins a block,
which it used to be right it still can be a huge amount of money in the future and i expect it will
be and i expect that it will also provide a lot of fireworks and shocks to uh the system but that's
how it is that's how it's designed so if if we go back to the power law if you think the four-year
cycle is still real um and we're are we about as low as we've ever been compared to the median on
the power law. Like how far from a bottom do you think we are? Right. So I'll just show you very
quickly the worst and the best. And then I'll also show you another way I'm looking at this now.
So this is all time data, right? And the reason I'm getting these nice smooth lines is I'm
extending, I'm taking the all time data, how I find the coefficients, don't worry about it,
running the math, and then extending the line back and extending forward. All we can do in the future
is extend it forward. But in the past, I'm sort of creating lines that actually didn't exist at
the time. This is a small caveat here. So I'm, uh, there's another way to look at this, which I
think will be more helpful. But basically, if you can imagine, if you look here, you see how we had
this big drop here, uh, at the start of June. And now we're basically setting our own new bottom
here. Okay. And we're off it, but I, this is way too early for me to predict, like, you know,
we're going up from here. I'm sure a YouTube thumbnail will do that for you, but I would just
be cautious about the levels that we're at. But as you notice, if we paint this line backward,
we go back to the SPF levels, there's a huge amount of gap here. At the time, the zero was
actually here. So another way I'm looking at this chart now is I'm showing the evolving trend.
All right. I also have the shades of the bears here. If these charts are constantly evolving,
does that actually mean that they're useful going forward? I'd be really interested to see what this
chart looked like as the sort of statistics were back in, say, the SPF crash, like how this cycle
would have looked since then. Right, right. So that's something I'm trying to show more on my
streams now, because precisely to your question, you get the nice smooth lines when you just draw
the math based on the all-time data, right? But the question would be, what did the data show,
say, in 2013 or 2017 or 2021? So that's why I'm now, when we look forward, okay, we have the same
projection of the lines, right? The percentile, quantile bands, basically. For simple language,
I'm just calling them lines, but here's how it would actually look over time.
And I think this is even more helpful to show people how, you know, trends can change, they
can evolve, but still overall, we're still in a power function.
So here's every band, but actually how it would look at the time.
And every new day's worth of data, we change the band.
So I'm not projecting backward, which I'm actually doing here to get the nice smooth
lines.
I'm just showing you how they would look at the time.
So this goes back to what I was talking about with Trollolo.
If you look at the early days here, this 2011 pop,
and again, I start my pricing about Bitcoin P today.
Sub penny.
I think I used 35 pounds for those 10,000 Bitcoins.
Because remember, it was a sterling to dollar transaction.
But in any event, notice how these gaps are larger,
kind of wild. The lines are trying to figure themselves out. And no one in the world was
thinking that Bitcoin was running like a power trend at this time, right? Not even here.
And you would see this thing, which is the Q100, which is like the realm of possibilities of
Bitcoin's price. It's fantastic, right? Like, let's just look at what the number says. Q100,
when we were at December 2013, that $1,000, $1,200 top, right? November, December.
is saying $350,000 for Bitcoin at the time is theoretically possible.
Obviously, we needed some more time to work out,
and the price never got close to that.
But because of the action that occurred in 2011,
that's what the math said.
So let's even take off Q100 just because, again,
it sort of distracts, I'd say.
But I'll come back to it because you can find some interesting things here.
Anyway, particularly as we get into 2016, 2017,
and this is where Giovanni and myself,
we started into 2018 looking at how this was forming.
Notice how the lines get A, closer together,
and B, straighter on log log.
They're not perfectly straight,
but they get pretty good.
You can clearly see from 2017 top,
they get, you know, there's a pattern.
And so this is another way to see the power log.
Now, look, let's look at the worst examples,
the worst offenders where we form new bottoms in this. We were at, say, a Q0 of $281 in
December 2014. But as that crypto winter, as it's called, I'm not using that word to trigger anybody,
went down to $200 at the lows in 2015, that Q0 turned into, well, this is log-log,
so it actually kind of stayed the same. But at the worst case, it got to $190. And you can just
see for those watching the video, you can see it's obviously dropping quite consistently.
2018, interestingly, that dropped to 3,000. Nominally, we know that 3,000 was well over
the 1,200 top of the prior cycle. That's also an interesting thing to look at. We didn't really
puncture there, right? That was kind of a nice support. And then 2020, we did. And notice here
in 2020, the pandemic briefly.
We punctured below.
And then let's actually look at what happened.
So the Q0 line is coming down
and it's setting a new bottom of,
you know, and if we look at the way
that that came down,
and by the way, this also shows you
that this has nothing to do with
are they parallel to each other?
You see the Q0 is actually slightly above the Q10,
which is interesting at the time in 2020.
But it comes down to fully, you know, be in the current position that is today.
And it took about from 2020 February to, you know, to 2020 late March, obviously during
the just extreme craziness of the pandemic and scared a lot of people.
And then so that's sort of the new bottom relative to this, like I said, for lack of
a better word, like setting these.
bands, these individual sort of thresholds of where the price can possibly be. And we just,
we set a new low and that's it. And so you just have to imagine that that's going to be,
not imagine, like just understand this is the probability of reaching this level is lower.
And then look, we set a new low as well with a scam bank and frauds gift to us all after,
of course, the just defy summer of madness in 2022, all that stuff, Terra, Celsius.
And so it took us, again, a couple months. We set a new low. But as Peter Zion was, again, saying Bitcoin was $17,000 overvalued at $16,000, we were already sort of forming that bottom. And then it took until January of 2021 to get out.
And once you see, just notice here, once you see the price start to rise off of the Q0 level, and when I say Q0, it's actually Q0.0001.
It's finding the least probable event relative to the power law.
And once it starts to move away from that, usually that bottom holds through the next cycle.
It doesn't always go lower.
Notice in 2018, it didn't go lower, but it did briefly in 2020.
It did briefly in 2022.
and now we're setting a new low.
So from this June fall,
we went to a low of Q0 of 67,000.
Now our Q0 is 59,000.
So here you can see it actually as it evolves.
And brass tacks, bottom line,
when you do this type of analysis,
which is not lines on charts,
I'm not just connecting dots.
These are actual scientific functions here.
And when you see there more white space
between each band,
it just means the range of probabilities is expanding. It means our range of uncertainties
based on prior observations is unfortunately a little bit wider. Risk is possibly a little bit
more. But if past is prologue, it doesn't last that long. And generally, these are screaming
by opportunities. And frankly, statistically, relative to the power law or the power curve,
this is as cheap as Bitcoin has ever been. In fact. Yeah. So who knows when the bottom will be,
but statistically this is deep, deep value.
As good value as you get.
Yeah, deep value, as good as you can get
for the brass tacks listener here.
But also, like you said, you don't know the bottom.
I'm not saying this is the bottom.
There's nothing here that tells me, you know, in August,
we're not gonna dip lower or whatever US legislation
fails miserably, this Clarity Act, and then, you know, people try to, you know, Trump gets impeached
or whatever. And his crypto businesses, he becomes the next SPF, which I've, by the way,
said that could even happen like two years ago, just thinking about the four-year cycle. I'm not
at all saying that. I have no idea what will happen. But, you know, these are interesting
little nuggets that line up with the four-year cycle. And as far as I can tell here, the four-year
cycle is perfectly intact. It's shallower than prior cycles. We've only been through nine months
of this. It's 53% drop. All right. 2020, we got to a 77% drop. Sorry, 2022. 2018, we got to an 84%
drop. 2014, we got to an 85% drop. So each drop is less than before, but I have no idea if it's
going to be 53% this time, 60%. But what we do see so far is actually relative to the drops,
relative to the trends, the cycle is, you know, the deviations from regression are shallower,
the shallower this time. It's interesting that it's the smallest drop in any of these bear
markets, but probably the worst sentiment we've had. You know, the next question I'm going to ask
though. So let's just assume that the four-year cycle is real. What would the median line be
for the top of the next cycle right now? So if we assume that the four-year cycle is real,
that means it's going to be 2029, right? And let's just say somewhere 2029,
uh november all right the ols there you can see 386 000 median 365 000 uh on a low case
q0 184 000 and on a really fun case which is put that q100 back which is really looking uh
like you know by the way those things are technically possible but
we got a million dollar bitcoin million dollar bitcoin but let's look at the q90 there
$500,000 Bitcoin. Another interesting thing is to look at the multiple over under the
curve itself. That's what you see in the parentheses there in StoolTip. So
a 3x multiple used to be more popular. It used to happen, let's say, it was more prevalent. Now,
I think that's less rare, but getting to a 1.4x, 1.5x, totally possible. And by the way,
notice how those deviations uh i'm talking about the multiples over under the trend so so my ols
let me put this chart back in just so you can see it clear what i'm talking about the ols is
is is one right q0 q100 here notice how back in the day right when we're when we're establishing
this trend, trying to work out the math, the Q100 could be 20x, right? The trend, 10x, the trend.
Q0 could be 0.16, 0.09, the trend, right? Q0, wherever it was painted. Today, Q100 is 3.3x,
Q0 is 0.42. And as we go in the future, these actually converge. So you actually get less
extremes to the upside, less extremes to the downside, which is in itself a very nice visual
of that scale, scale invariant sort of power law nature where it's a sustainable growth with,
yes, not as much upside, but also not as much downside. And in general,
a more stable type of a growth is actually what power growth represents.
yeah i'm here for that that sounds good um is there like uh if you're trying to take into account
like efficient market hypothesis is there an argument that as this sort of model ingests more
data it will stop breaking to the downside every couple years like it is doing now because it will
have seen enough previous market moves that it can sort of price in the future or is that is that too
far out there probably no i mean uh and again this gets back to the grand theory which we can talk
about. I'm trying to think if we need more charts to show you in response to what you're talking
about here. But I would say, you know, I said the power law is projected to slow to a 10% growth
rate in 2070. That's still, that's nice to project out that far. And I do it for fun. And I show
people what the price would be and, you know, what the growth rate is on my streams all the
time with this, but I think that that's more just trying to give us a flavor of how the thing will
grow. And I do think, I don't want to say there comes a time when, like, I'm using this term a lot
like fireworks, right? Often in financial markets, we try to say there comes a point when this stuff
breaks or whatever. That so far hasn't happened. I could be wrong though. Like we could be
geopolitically worldwide, we don't have to get into it, right? We're in sort of a realignment now,
whether it's NATO, whether it's China, whether it's Russia, whatever, we're in a realignment of
sort of the world order. It's possible that the dollar loses status and Bitcoin ascends rapidly
there. And that's why I use this term sort of fireworks. I do see something like that happening
in the 2030s, simply because of the way a lot of numbers are lining up, right? So the parallel
is going to be about, it's going to fall to 25%, 20% by 2040. That's going to happen to match,
I think, what the stock market is probably doing around then. And also the market cap of Bitcoin,
you will be around 5 million per coin at that time. So that's going to be about $100 trillion
market cap. The monetary base is also going to be about $100 trillion. Again, I don't want to be
drawn in by these round numbers. Because even when Bitcoin's $100 trillion in the monetary base is
$100 trillion, that's still that 50-50 market share. And it probably will be the case that
maybe some central banks are backing, major central banks are backing their balance sheets
with Bitcoin at the time. So it's hard to predict, I would say, exactly how this plays out. But what
I do think is a we're on a collision course is Bitcoin's value is going to grow to a number and
also the growth rate of the asset itself is going to shrink to another that's comparable to the rest
of sort of the world trad fi and then at that point and again that point could be many many
years it could be a decade um the world's gonna have to see do they want to like lend out Bitcoin
or let's say they lend out fiat units,
maybe some of them are backed by Bitcoin
to try to get a good return
where we're still using like dollars, euros, yen
as the base underlying currency.
Or do we move to the sort of numeraire
where it's Satoshis?
And then in that case,
do you want to lend out those precious Satoshis
at a rate that is actually
probably either too hard to pay back for the borrower
because the Satoshis continue to get stronger,
or do we go to something totally different,
like an equity-based system
or a system where there's just maybe some very short, short-term debt,
but if a bitcoin world where people are investing in projects and trying to you know just develop the
world maybe there's some sort of a different model obviously with technology and everything
where it can be on more of like an equity-based system but that's that's part and parcel of the
grand theory that i'm thinking about because i think in 10 years you're gonna a lot of these
numbers are gonna collide the the financial system and the bitcoin system and i'm not exactly sure
plays out. But I do, for anyone listening to this show or watching the show in the back of their
mind wondering, okay, well, how does this work if Bitcoin's growth rate declines, but the stock
market stays at like 15, 20% per year, what happens? I agree. There's going to have to be a
decision that's made there by people of all kinds and all sorts of governments. Are you just going
to have Bitcoin sort of locked in some component of the economy like gold? Withdrawals are almost
impossible in the TradFi world and just exponentially more fiat units are lent out at interest,
just like the system we have? Or do we move into this system where Bitcoin actually as a
stable, scalable asset that grows at a power regression
will actually pull the rest of the world into their system and then maybe the system will start
growing power. But the key here is, if it's not clear, if you grow in power, an interest rate
won't work there. A fixed interest rate won't work. At some point, Bitcoin's enviable UTXOs,
they're going to accrete in value, but relative to, I don't know, the dollar or Apple stock,
they actually might fall below that. So then what happens at that point?
See, I think that's really interesting. It's one of the things that I've always really
struggled with because clearly if we went to a bitcoin standard you're not going to get rid of
credit like credit is always going to exist in some capacity and if if there's like a business
opportunity or an investment that looks tempting enough people will part with satoshis to invest
in that and and some people will be able to make enough money on those business decisions or
whatever to pay back those loans but not everyone and i get that in this fiat world we have tons of
malinvestment because it's very easy to get your hands on on credit but if you do you have the
opposite where people are unwilling to lend unless you have an absolute killer idea and there's
actually lack of investment yeah that's the that's the old like it's almost keynesian central banker
like right i mean fear of the deflation and um look i i don't have a full answer i'm more thinking
about it mathematically and um i would say it would depend on the system it would depend on the
monopoly of the system who's in control of the system and if we're on a decentralized system
where everybody's individual demand is stronger than the government's uh actions to compel them
and they're just going to want satoshis they're going to want it in their wallet or they're going
want to use lightning, then I think such a system could work just fine. But actually,
due to the nature of Bitcoin's power growth in this case, and just the nature of, you know,
we know that the supply is extremely limited here, unlike gold, unlike silver, where,
again, it exponentially produces 1.8% a year more gold, 1.5% a year more silver.
the system could change we could have like sort of the best way i could describe it is is uh
you know either very short-term factoring type debt or people people are just going to have to
take uh more equity contracts in their endeavors and everyone becomes a vc yeah yeah exactly and
you might not be sure the exact, you'll have a range of your return. Maybe there's like some
preferred return that you try to get, but if you don't get it and you split the profits or whatever,
technically nothing is impossible to do here, but it's just, it's not exponential
growth. So we're, we're already going into my sort of the grand theory and I have so many
different charts but I don know where you might want to take this but I can show you I think the most interesting and most relevant right now is probably talking about the treasury companies because obviously sailors had a rough couple of weeks ever since they sold that first 32 bitcoin i don know what was that a
month a month or so ago um they've kind of been in a mess it looks like they've recovered it now
they've sold bitcoin to pay dividends which makes total sense to me i think that's what they should
do i think that's good um but like you said earlier in the show their cost of capital right
now is 12 13 whatever it is that's fine as long as the caga stays at around 40 but as you said
that's not going to continue forever and just as like a complete vibe gut check it's clearly not
going to exist forever like bitcoin is not going to go up at 40 forever yeah the question is when
does that date come and what do they do in that situation because it's funny that they've gone
from basically a zero percent cost of capital when they were doing converts at zero percent
to now paying 13%.
I don't know what the market is,
like why the market's forced him to do that.
But I mean, 13% is pretty high.
The trade-off is probably the preferred aspect of it.
So it's very, very difficult for him to get liquidated
because it's a perpetual instrument,
which is smart on his part.
It's very smart to do it that way.
But yeah, there is a higher hurdle rate there
that he has to make.
Let me show you this.
This is the S&P.
I don't know if I showed you this last time, but this is the S&P over a couple hundred years.
I showed this actually at the cheat code conference, a variant of this chart.
So exponential growth, again, I'm not going to go through all this, but this is S&P 500 back calculated.
There's people that do this back to like the 1800s.
Bottom line is it's very slow growth in the 1800s.
The 1900s got a little bit faster.
I do these little monetary epochs.
So when the Federal Reserve was founded, then when we went off of gold, Bretton Woods ended and we went to 1971, ended the Bretton Woods standard. And then from 2008, when basically banks got bailed out all the time by central banks and we have this monetary easing sort of pattern, notice that the treadmills get faster and faster.
and the treadmills are actually the growth rate.
I'm going to take the growth rates off.
But here's the, this is log linear, exponential growth.
But what is actually here is Jeffrey West,
the physicist, he's got a great book called Scale,
talks about this as well.
There's others that talk about this.
He calls it super exponential.
So it is constant growth,
but it actually grows even faster over time, right?
If you just take these sort of long enough horizons.
and that's my question about actually how the Bitcoin system marries with this idea and I do
think it's going to be a part of it so when Jeffrey Ress wrote his book and just to summarize
try to summarize the physics book in you know 30 seconds here he was talking about this very
interesting idea of the singularity but he wasn't using like the Ray Kurzweil he was just using a
mathematical singularity. But if we can see that with our world, our fast growing world of technology,
and we know that we grow faster and faster and faster over these epochs, but notice that the
time periods are shorter and shorter and shorter. We still have some time. We have some time,
but presumably there'll be another crash, probably a deep crash, more monetary inflation.
But also, also there is technological development, which causes the stock market to grow faster. AI is
a prime example right now. Okay. There will come a point where we reach what this mathematical
singularity, which basically there's one point and, you know, we can't grow any faster. What
happens there? That's the question he poses in his book. He leaves it open. And he wrote this book,
I think the first draft was 2014 or maybe 2017. I'm not even sure. He was not mentioning Bitcoin.
He did not think about Bitcoin here. So I've sort of overlaid Bitcoin as an idea of what could take
over the mathematical singularity. It's just another data point. And I think by the mid-2030s,
you'll see these fireworks. So again, exponential growth, let's take off these trends. Let's show
you in percentage term what these mean. So now you have these, this is the treadmills, right?
While you're pulling that up, can I ask you a quick question on this? Does it have to stay
exponential? Yes. All financial markets have always been exponential, primarily in my opinion.
I don't have like vast amounts of underlying research here, but it's as ancient as, you know, the oldest contracts that we have is basically the interest rate.
It's an ancient thing and interest by definition, applying an interest rate to an asset, to a debt, to a mortgage, whatever, to a company, cost of capital.
That's an exponential function.
So it will always be exponential.
and what's even let's say even scarier or wilder for our times is we have massive amounts of
technology and faster and faster growth rates so this is the super exponential so again just
i'm sorry i'm being an idiot but i want to know why why does putting an interest rate on
on it make it exponential is it because of compounding yeah yeah yeah so that is uh compound
Compound interest is the same thing as exponential growth.
Geometric growth, continuous compounding, exponential growth, they're all essentially the same function.
And that is, by the way, a straight line on log scale.
So when you grow, you get a trend that looks, let's just say I'll grow from 2008.
I split up the trends here, but from 2008, I have a line going through this.
You can clearly see this is exponential.
Log linear.
and in my opinion, the reason for this is credit.
It's credit.
It's the interest rate.
Yes, the money supply is a part of it and everything,
but the stock market is way more valuable
than the money supply.
So it's credit actually that does it.
And notice, by the way,
this is another small tangent.
The markets are negatively skewed.
You see that how we have like huge dips to the downside
and then we sort of slowly go up,
but then we always have these stairs up, elevator down.
Right, right.
that is different than Bitcoin.
If we go back to Bitcoin,
this is sort of a different topic.
Notice how the crazy spikes are the opposite.
We surprise ourselves to the upside,
which is why, by the way,
I still think we can do that.
You know, it might not be hyper-Bitcoinization
all in one day,
but I think we can easily go to,
you know, 250 or 300,000, whatever.
I saw one, you probably saw this as well.
One of these ideas,
maybe Trump buys strategy.
We have a $250,000 god candle
or something. All this stuff is possible. And Bitcoin actually surprises to the upside. So you
never know. But that's sort of a small tangent. Back to the idea of the stair steps, which I got
to find. There's too many charts for you here, Danny. Where did I put it? Here it is.
The stock market over a long, long, long period. The other trend, which is wild, is it's actually
faster exponential trends. That is also appears to happen in markets. And maybe it happened in
old times as well. Like maybe that was why Rome collapsed. Maybe that was, you know, people blame
it on money printing, they blame it on this, blame it on that. But it could have been a situation
like this. Now, again, we always want to think this time is different. I hope that with technology
and with Bitcoin and with everything else in our modern world, we're not going to go back to
mesothamia or anything like a major crash and i also think that there are release valves primarily
bitcoin that could get us out of such a crash yeah um but this is this is part of the the grand
theory yeah so there's this uh physicist sornette uh there's uh jeffrey west they are posing these
ideas that we get to this super exponential growth and it happens to be by the way late 2030s
where they think that we could get at this faster and faster point where it's just like well what
happens next i mean and that that does fit in with the whole ai narrative so well it does it does it
does so mathematically what i'm trying to show you here is faster and faster growth and so now
again i'll show you the growth rates this this is exponential growth this is what i was saying
about the interest rate like you can think of this as the interest rate think of it as the growth
rate of the stock market whatever it is the growth rate of the stock market but also think about
interest rate two percent in the 1800s is how the stock market grew when the fed was founded until
1971, 4.73%. Straight line, compound growth. Take out the noise. Yes, we had the Great Depression,
a lot of volatility, whatever. Brass tax, 5% in the early 1900s. Late 1900s, 9.5%. This is when I
was studying finance. We would talk, you know, getting a 10% return was extreme in the stock
market. Now, from 2009 till today, we're at a 12% per year compounded growth rate. So basically,
so again, I know I'm going through a lot here, Danny, but the bottom line is I'm trying to
visualize, and Jeffrey West actually uses this phrase in the book. He says faster and faster
treadmills of growth. You can even see it in the stock market if you go far enough back and
look, the dollar is, there are many currencies in the currency graveyard, right? Thousands of
currencies. I'm not saying, I'm not predicting a collapse of the dollar or whatever imminent,
I have no idea. But what we do see with the US stock market, with the dollar, with many currencies,
is faster and faster growth rates of debt, faster and faster growth rates of the stock market.
And then there's a question, how does that work with Bitcoin's interestingly novel model of being
a new digital currency that's not controlled by anybody.
But the market is showing a sort of actually declining growth rate, still growing quite
fast, but it's scaling in a different way.
It's a curious, I think it's a very curious overlay to this question of what could happen
with the singularity.
So if I put on Bitcoin now, back to our beautiful power curve, hopefully you start to see where
I'm going.
I don't even know how you meant to read this.
Right.
So it's the same power curve, but on the right axis, I'm showing trailing 12-month growth.
Now, the noisy one is here, right?
Trailing 12-month growth.
Obviously, you can get thousands of percent, hundreds of percent, whatever.
This is, you know, and then it can go negative.
Let's just take that off, take the noise off.
This is actually a curve trailing 12-month.
It's just the trailing 12-month return on the OLS, right?
on the average power curve.
So now we can start to see the smooth curve of Bitcoin.
And then here's, you see, we're at that 40% right there.
As of today, July 2026, 40% return, $62,000 Bitcoin.
If I back this out, I used to have this go out to like 2100.
I told you that it's 2070 when it will hit 10%,
but let's just look at when it will hit other levels.
So it hits 30% on a curve, Bitcoin power curve in 2031.
In 2041, it hits 20%.
And in 2070, it hits 10%.
So actually that gives you a scale that it's not linear.
It's not constant, right?
It slows.
And even the rate of this slowing, right, can take longer, right?
So 2031, 30%.
Right now, 40% per year.
By 2031, it's projected to slow to 30% a year.
By 2041, it's projected to be 20% per year.
If we match that up with this idea of faster and faster treadmills,
and who to say what going to happen in the next 10 years of the stock market But we at 12 right now By the way that without dividends So if you reinvest dividends you got another 2 on there at least So you getting close to 15 as it is in the stock market
But say we have another crisis, then we have another round of money printing.
It does seem like the late 2030s, 2040s, we're going to have some fireworks because
based on the models that we have with Bitcoin versus the numeraire of the dollar,
this is the growth rate that it's tracking. And it's going to cross with a faster and faster
stock market probably by late 2030s, maybe early 2040s. Yeah. The idea of being able to buy like
an S&P index and get more returns than buying Bitcoin is weird. And I don't know what it means.
right likewise uh what it would mean is if if what it would mean is is that bitcoin has been
co-opted into an exponential asset sailor has this other sort of way too cheeky way that he
describes what he thinks is going to happen have you heard him say basically uh that bitcoin's
going to settle into a 21 return i don't know if you've heard him say this what does what does he
mean well it's it's not what he means that it's going to go exponential and by the way he's never
uh give you a little inside baseball on this i know that he's talked to giovanni a little bit
he said you know hey congrats on the power law uh giovanni met him at some event and then
at these things you can't really talk uh quickly right and you know sailor's obviously an in-demand
fella at these conferences and and he tried to get into it a little bit but sailor basically said
you know i think it's at the end of the day bitcoin's an exponential asset it's going to
grow exponentially. To be clear, none of us that have been studying this for a long time see it
right now going exponentially. It could in the future. But what does that mean if it goes
exponential? First of all, this growth rate turns into a straight line. So by the way,
if you hold Bitcoin, I'm not saying this will be like a bad thing number go up wise, right?
It actually would portend, if we go back to this chart, right? The original chart I showed you,
exponential versus power, take off log, log, just look at log linear. If we get back on exponential
growth, which is the straight line, common sense tells us constant growth is faster than proportional
growth. It's going to be good, right? It's going to be good for Bitcoin holders. On the one hand,
the number go up. But on the other hand, this is where you get into the idea of,
you know, what does that actually mean? Is TradFi co-opting the system? Can anyone
claim any Bitcoins on an ETF? Can you withdraw Bitcoins from exchanges after 10 years?
There are a lot of things that could play into this. And by the way, if some of those play out,
perhaps as some entrenched players in Bitcoin want, then I think, yeah, Bitcoin could go
exponential. It could match, it could mirror the exponential growth rate of the rest of the
financial system. One of my favorite quotes was from Thomas Pacquiao from PubKey. He said on a
show we did years ago. We're all going to be rich and depressed because the project failed. And that
seems like the example where we're all rich and depressed. I actually remember that show. Thomas
is a great dude. And what he is saying is 100% what I am saying here. I'm just trying to show
you the math of it. I'm trying to show you the math of it. So this is my grand theory is basically
a lot of people that are in the system have a lot of fiat interest that they need to pay back.
In order to pay that back, they have to stay above the level of interest.
To do that, you have to be exponential.
To be exponential, it could require some sacrifices.
It could require a lot of fiat interest.
It could require you not holding your keys.
It could require an overbearing state on here.
There's a lot of things that could go into that factor.
It also might be a totally different scenario, which is Bitcoin turning the system power.
But again, that's a different scenario.
Yeah, but I want to know what that scenario is, because if Bitcoin going exponential is essentially, if we simplify it to that being Bitcoin being co-opted by the financial system as we know it today, what's the inverse of that? What is Bitcoin co-opting the financial system into power? What does that mean?
I think it means we started to get into a little bit, but I think it means we're free.
There might be some sort of money monopoly.
You know, I always say the dollar is the best looking horse in the glue factory, right?
It's around for now.
It's been around for a long time.
There's still thousands and thousands of currencies in the graveyard.
I'm not saying the dollar definitely avoids it or definitely doesn't.
But if Bitcoin persists globally, and by the way, if mining is free globally, where people can mine, people can trade, people can send, you can withdraw your keys.
You know, you've got things like Fetty Mints, super popular, or Chalmian Mints, or whatever, whether that's a layered system, which it's going to have to be, obviously. But the layered system is also very, very easy to sort of get back in the castle and get back to on-chain Bitcoins.
If all of those things persist, then I think there's a real possibility that we stay in that free cypherpunk Bitcoin world where Bitcoin keeps growing as it is. And then once we do have that crossing point, which I also think about a lot, people will start to say, look, I don't want to do it. I don't want to put my capital at risk, hope that I get 20% in the S&P or whatever. I'd just rather hold Bitcoin.
I'll invest in some projects.
I'll pay for employees or whatever.
But the model might look a little bit different.
The model might be more equity.
It might be very, very short-term debt, factoring, invoicing type debt.
Short-term is the best way I can say it.
Because imagine putting these together now.
Sorry, not this one, but the stair stepper, right?
Where we 12%, 50%, and then the declining interest rate.
the only way that this system holds, which is the power, this mathematical relationship holds,
is if people sort of say, okay, I don't feel like I need to chase Apple at 20%
CAGR. I'd rather hold Bitcoin. I'd rather do it a different way. And by the way,
I'm not sold on either. To me, it's 50-50. It's just 50-50. I see this is why I'm not married,
that Bitcoin stays power.
I think Bitcoin could lose its power function,
turn into an exponential like Saylor wants.
And so back to what he said,
he has said this sort of cheeky number,
like, oh, it just settles into 21% per year.
That's a total number pulled out of thin air.
It just obviously has the number 21
and it happens to be 11 percentage points
higher than his cost of capital.
So it sounds good.
There's no evidence in the Bitcoin power curve
that it's going to stop at 21% per year.
By the way, 20% is right out here, 2041.
wait where is it there it is 2040 get 2040 2041 so this is why this is this is part of my grand
theories basically this is why i think late 2030s early 2040s we're lining up with the
jeffrey west sornette singularity idea ray kurzwell by the way says the same thing uh late 2030s
We're lining up with probably $100 trillion valuation in Bitcoin, $100 trillion valuation in base money, and anything goes.
By the way, to throw one more chart at you, here's the monetary base.
We talk about this a lot, right?
I haven't updated this for the third quarter.
Sorry, for the first quarter yet, even.
I have broad money and base money as of 2020.
These things move slower.
We can look at Fed balance sheets if you want after this.
We can leave much more updated.
uh here's the monetary base over 50 years i don't want to change too many topics but basically this
is the money supply that's comparable with bitcoin it's world central bank money all right it's about
26.4 trillion dollars as of 2025 year end 26.4 if you run these same regressions notice how we're
you're an expert now danny on exponential versus power you see straight lines on log linear
base money is an x it's an exponential function notice where are we in the realm of probabilities
way low, way low, right?
We need more liquidity.
Right. We're at the bottom end.
And again, I'm not saying it's going to happen tomorrow.
Fed is being a little bit cagey with their minutes.
Warsh is, you know, the sort of hawk dove,
Griffin sort of, you know, amalgamation.
We're not quite sure where he's going to be.
But basically, as John Tamney,
who has a great book on money long ago,
said presidents usually get the Federal Reserve chairman they want.
and we know what Trump wants.
So lower interest rates, more money printing.
But anyway, we are at the lower end of the curve globally.
We were at the higher end of the curve at 30 trillion in 2021.
So here's the point.
This is another wrench in the scenario.
Sorry, that's further back data, which is not really comparable.
At 50-year data, you look at this CAGR.
This is the CAGR of the exponential OLS right there.
CAGR, 10.2% per year.
10.2% per year.
It's interesting there that so when you pulled up the other chart of the S&P, it was 2% way back.
It's essentially still 2% at 12% today.
No, no.
No, you mean it's essentially growing the way that it was in the 1800s?
Yeah.
No, it's not.
Here's the interesting kick.
It's another wrench in the formula.
Money supply is actually growing slower since 2008.
So is U.S. debt.
So here, you might think that it's growing faster.
We had all this money printing in 2008.
And yes, it does kind of depend on where your starting date
when you do these regressions.
But I started year-end 2008, by the way,
same time that Bitcoin started.
So this is 1971 trend.
So you see the trend here, 10.2% CAGR.
Here's another chart where I started in 2008.
Notice, first chart, second chart.
First chart, second chart.
When you start the regression later,
it's actually shallower growth.
And I'll show you the CAGR, 7.7.
So in the last 15, 20 years,
I believe that the powers that be,
the whatever, the central banks,
they realize how bad they screwed the pooch
in 2006, 7 and 8 with low interest rates
and everything else and the bailouts now.
So they're very cautious actually about extending-
How is that possible?
How is it lower?
Yeah.
When we know they're printing trillions and trillions of dollars
over the last, especially over the last, like, six years,
2020, 2021.
Right.
The bottom line is they don't always print money.
They print more, they print less.
You know, the Federal Reserve wasn't printing money
from 2014 until 2020.
Yeah.
A lot of people don't sort of know that.
Now, other currencies were.
You see, it was generally going up.
And there's a huge spike in 2020, 2021.
But since, you know...
This is a long five years now where we've taken the money supply back from 30 trillion down to 26.
And if you just run the math from 2008, when Bitcoin started until today, this is the actual CAGR.
It's only like 8%.
So let's just round it.
8%, 7.7%, 8% versus 10% over the 50 years, all in dollar terms.
By the way, not to throw another wrench in it, but it's actually probably, both are probably faster than that.
because if you measure, if you do these regressions all in their native currency and then take the
average, it looks different than if you do it in dollar terms. It's showing dollar supremacy
because they get weaker against the dollar. I don't want to throw too much wrench in that,
but they are printing a little bit faster than this in their native term. It's true,
weighted globally Let forget that for now 10 versus 8 10 50 trend 8 2008 trend in the money supply that another wrench in the curve or another wrench in the calculation where I think they are well aware of the damage that they have
done in intervening in the market so much. They think that they have all these tools like paying
interest on reserves and they're just more cautious, so on and so forth. And actually,
the data shows it. Like U.S. federal debt has the same trend. Until 2008, U.S. federal debt was
growing faster than it has been since 2008. It still grows. It's still huge, right? I mean,
this is the nature of compounding. But that exponential trend over the epoch is slightly
slower. So again, it's a little bit of a wrench in the thesis of this one, where the stock market
for sure is growing faster.
But does it matter if they're aware of the issues with that trend?
Because when push comes to shove, if they need to,
they're still going to print money.
Sure, they will.
We can be sure that that's the main thing that they know how to do,
and that's how they deal with crises,
is to add liquidity or basically add zeros to banks' accounts
with them at their master account.
So it's a digital money print that they do,
as opposed to a physical.
They also do physical money print.
And they have started that too, right?
The Fed balance sheet is growing again after a few years of doing nothing but drop, essentially.
Right.
Here's the Fed balance sheet.
You see, it has been growing since November of last year, ever so slightly, and maybe even
cresting a little bit.
And then we have, you know, sort of hawkish dovish mixed signals from the new Fed group.
They're not really, they're very, they just released their minutes this week and they're
very cagey.
but some people think they might even hike in September. We'll see. But I think I have one of
the ECB as well. No, this is the ECB balance sheet. Okay. So it's about 6.12 trillion euros.
Again, when I say balance sheet for people that are new to this, it's the monetary base. This is
the asset side. The liability side is mostly the monetary base. There's a little bit of other
things sometimes, but just keep it simple. ECB, since it's been founded in 1999, has grown its
balance sheet at a KG of 10.6%. So notice that's actually similar to the 50-year curve,
but they as well are at the bottom end, the bottom end of the analysis.
Time to short fiat and buy Bitcoin.
Yeah. Yeah. So it all looks good, I would say, if we assume that money printing is good for
Bitcoin, if we assume there might be some more instability in a very unstable, exponentially
growing system, and we assume that Bitcoin is a sort of more stable power asset that is still
growing tremendously at 40% per year and, by the way, discounted to its lowest percentile quantiles,
all that looks good. But the grand theory, as we've sort of been touching on and off in this
episode is. I think it's, you know, late 2030s, maybe even a little bit later, as I said,
they can push if they really want to, they can take off the gas. And they did that last five
years. So it's just the nature. All I do is measure this stuff, Danny. I try to give people
the best way to look at this stuff just by measuring rather than talking. But I'm giving
you hard facts, hard data. Stock markets growing faster, exponentially growing, sort of stair-stepper,
super exponential growth. Base money is actually, it's growing fast, but it's over the last 15,
20 years, it's actually growing at a slower rate of return. US debt as well. So there's a mix there.
But if we want to come back and just think about Bitcoin as this asset, we try to grow it,
measure it, how it's growing and everything. It's looking pretty good. Never financial advice
always. And one more thing just to show you here. If we take the lows, let's say you bought in the
low here. Let's actually even show you the evolving exponential trend, which is here,
right? Which we talked about this one. Let's say in 2022, when Peter Zion was saying it was
overvalued, you held it just until here, we got back to trend. Okay. This window is 2022.
uh,
December until we got here.
I,
the window is a lot of bit,
a little bit wider,
but what you see,
I'll just show you the dates.
It's 2020.
I,
the,
what I just zoomed in was 2022,
December 7th until holding until 2024,
March.
That's actually when the price got from it's low to trend.
Let's look at the actual Kager that you could have earned right there.
176%,
176%.
When the trend itself,
um,
Well, this is a little bit different because it's evolving. Let me go back to this one just to show you the trend at the time. Here we go. Roughly here to there. It could have even gotten 197%, right? If you bought whatever, it's going to be slightly off. 180, 190% CAGR. The trend itself at the time was 48%. 48% was the power curve trend. Now we're down to 40.
So you can still, in Bitcoin, make many multiples over the trend.
Even though I tell you again and again and again, I tell people it's doubling every two years,
but that doubling time will increase.
The rate of growth will decrease.
You can still, if you pick the right moments, and by the way, now seems to be a right moment,
and six months from now could still be the right moment.
I'm not saying we're out of this bearish period.
But if you have the whole encompassing view, you understand statistics,
you understand how this stuff is working. Statistically, we're in a very good place for
a bullish Bitcoin hodler. Yeah, who knows if it's the bottom, but it's not an area you're
probably going to regret buying. The interesting thing to me is this, whatever happens mid to late
2030s, it's like perfectly in the first turning, two worlds, Bitcoin and the financial system
collide. Who knows what happens, but that's exciting. I can't wait to see it. Yeah, it really
is. We'll be here for it, right? Danny, I think it's, if you look for it, you will find all sorts
of crazy numbers, conspiracies, thoughts about, you know, if gold's coming back or whatever. But,
you know, if we can measure the Bitcoin system, measure the TradFi system,
there's a lot of interesting things happening in late 2030. So I think that's pretty cool.
Another thing, just one more here, or we can go longer if you want, but there's
another chart. There's UTXOs. I like to show against... So let's say Bitcoin's the benchmark
now. How strong are different currencies within that? And actually, Bitcoin is going to become
that true measuring stick. So here now, this is the same power curve, but I'm using it.
I'm starting everything at one on Bitcoin Pizza Day, May 22nd, 2010.
So it's the same exact curve, but the numbers aren't really going to make sense. It's just,
you can see the power curve. Bitcoin itself is up 15 million times. So good on the person that
bought them from Lazlo, right? Since Bitcoin pizza day, 15.5 million times. And the power
curve is up 34 million times. So you see the discount on the power curve there. We're at 45%
under the curve. So this is the dollar. Is there a currency that I found that is actually stronger,
stronger would be lower than the dollar? There is. It happens to be the Swiss franc.
just slightly
alright so the Swiss franc
is
only up 10 million
only
you're only up
10.6 million
in Swiss franc terms
since Bitcoin pizza day
alright
but it's very similar
right
it's almost identical
but it's just
we can say that
relative to bitcoin
the Swiss franc
is the strongest
dollars next
but then here's
here's something cool
let's look at weaker
currencies like way weaker
let's look at turkey
Turkish Lira. They had the right idea of actually lowering interest rates during massive inflation.
That was their sort of policy a few years ago. So here you see Bitcoin is doing very well against
the Turkish Lira. If you are denominated in Lira, you need to save your purchasing power. You'd have
459 million more times Turkish Lira if you had bought those Bitcoins in 2010. Again, the number
is not important. It's the level of these colors, basically, or the currencies. And now look at this.
Let's do the power curve on that. Talk about the power curve breaking, Danny. The Turkish lira
hasn't even broken. It's above its power curve, its power regression, which I think is pretty
interesting. Now, it's probably going to go under it, and if it passes, prologue it.
But notice how in the last cycle, it was under its power curve much shorter than the more dominant global currencies of the dollar and the franc.
So that's interesting.
Now let's look at the Argentine peso.
Just one more.
Let me find it for you.
BTCRs.
There we go.
And this, by the way, is the official bank rate.
It's even worse in reality.
This is not the black market rate, but just to show you.
So there you'd have 5.8 billion times more Argentine pesos if you bought the Bitcoin with those pesos back in the day in 2010.
And then let's look at the power curve on that.
It's not even close to the curve.
It's never coming back.
So that shows you, by the way, this idea of breaking.
Is the power curve breaking?
Actually, in all currencies, it's a power curve.
There's a little bit different slopes.
there's different levels uh none of them have broken and in fact in two of these currencies
out of four that i'm showing you in this chart the price of those currencies relative to the curve
that they manifest themselves uh in the bitcoin market it's actually above it's above trend
probably going to go below soon in the case of turkey if we have a couple more months of
bearishness but that's how it looks man matt this has been awesome i love that we've done like an
hour and a half on the power curve i i initially thought this would be like 15 minutes of the
conversation but it's been awesome um but we'll just have to do it again at some point
thank you uh thank you for sticking with us i know you've got a sick kid over there
but um appreciate you guys for dealing again at some point with the takes and uh appreciate it
tell everyone where you can go check out your youtube channel
pop up list everything you do yeah you can find me at uh all the platforms at one base money so
the number one base of money.
Podcasts, streams, whatever.
You just go there on Twitter or YouTube
and you'll find my account.
And yeah, this is a lot of what I'm doing now every day
is just trying to dig into the numbers
of how these trends work in the Bitcoin world
and in the TradFi world,
trying to reconcile them.
And like you said,
it's going to be an interesting next few years.
I'm glad to be sharing it with you
and others in the space, man.
So happy to do it anytime.
when can when are you going to open this up so i can use these charts soon hopefully by the fall
hopefully by the fall you'll be ready to time man ready to go i know i know it's it's it's an effort
it's a like i said i'm more applied statistics guy so i don't want to just go only this i want
to get you some economic data some money supply data some other things trying to get it all
together here shortly i will be a subscriber when you do it um appreciate you man thank you
no problem danny
Thank you.