On a monumental day for Bitcoin, where it opened at $56,900, the flagship digital asset has officially exited the bear market under the Bitcoin Power Law model. After surpassing $61,000, it now has the ‘fair price’ of $61,594in line with the expected power law price.
First posited by Giovanni Santostasi, the Bitcoin Power Law is a model that attempts to predict Bitcoin’s long-term price trajectory based on its historical tendency to follow a roughly straight line when plotted on a logarithmic scale. This pattern suggests an underlying pattern for Bitcoin’s growth.
The model distinguishes between ‘fair price’ (the trend line showing an average valuation) and ‘floor price’ (historically about 58% below the fair price, indicating a potential floor). These values are calculated using a formula based on the number of days since the creation of Bitcoin (Genesis Block) and a specific exponent:
Fair price = 1.0117e-17*(days since Genesis Block)^5.82.
The chart below shows part of the power law model and its relative fair price, as shared by Santostasi on February 25. Bitcoin has since passed the current ‘fair price’, indicating that it is heading towards the bull market ‘bubble’ identified as a key component of any Bitcoin halving cycle within the power model.
Within the power law model, price deviates from “fair value” above and below during bull and bear markets, but eventually returns to fair value over time. Historically, the model has been very accurate. However, it is important to note that this is a model, and while it has held up surprisingly well at times, market forces can change and the model cannot take into account all the factors that may influence the price of Bitcoin.
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