A few years ago, Giovanni Santostasi published a style of force law to make Bitcoin’s value habit compatible over time. The fundamental concept is that existing laws are useful in describing a wide variety of herbal and clinical phenomena. In the past, the law of force adapted Bitcoin to an undeniable equation
Price = A(t – t_0)^n
Here, t is the time, t_0 is the initial time, A is a scale and n is an exponent. Simply put, Bitcoin’s value is a measure of the time since its creation. This dating can be noted more visually by taking the logarithm of both sides. If you do this you will achieve
logPrice = logA n log(t – t_0)
Then, you can fit a linear regression to log price against log time.
My knowledge is from 2011 and you will see that there is a very transparent linear trend in log-log space. This differs from my previous analysis, where I used and plotted log values opposite to time. Here I plot the log value against the log duration.
The author’s comprehensive article on power law theory is a more in-depth exposition of why the force law works in nature. Most of this essay is difficult to read; I disagree on one point. The author claims that the force law has nothing to do with scarcity, as it is a statistical fit to a cost graph. However, scarcity is the basis of Bitcoin’s cost proposition and is precisely the reason new buyers continue to enter the market.
My explanation for why force law theory applies is the FOMO cycle. Since Bitcoin has been proven to be scarce, new users will know that the limited supply will maintain the higher value in the long term and will not cause a drop in value, as may occur. place with other assets like gold. Gold miners can increase their production if the value of gold increases. As a result, new gold miners are shifting the gold production supply curve forward, leading to a decrease in the value of gold as more gold can simply be mined.
Bitcoin miners do not have the ability to replace the issuance of new bitcoins, as this is decided through the protocol. Bitcoin miners can only contribute a new hash force to the network, which increases their own chances of earning the block reward. However, they do not have a market-wide value effect on similar gold mining companies.
So, new Bitcoin buyers know that there will be other buyers after them who will face the same resolution problem, a little later. Except those buyers will have even fewer servings available. Therefore, it is optimal to enter the market once you are aware. of this demonstrable rarity. At any given time, there will be someone before you who bought before when there were more Bitcoins at a lower price, and there will also be someone after you who buys when fewer Bitcoins are available. This cycle is ultimately what determines the upward trajectory of prices. No other cryptocurrency has this exclusive feature.
Of course, there are shocks to the system, such as the collapse of FTX, Mount Gox, the Silk Road, and China’s crackdown on Bitcoin mining. These are the gaps around the trendline. But the main precept here is uninterrupted dissemination. of Bitcoin wisdom among the population.
Will this ever stop? Once Bitcoin adoption penetrates the world, there is no guarantee that the FOMO cycle will continue. At that point, costs will stabilize and volatility will decrease, as befits a widely held asset. But we are a long way from that point, so there is some fact behind the force law graph.
It would be intellectually unfair to admit that value has no effect on Bitcoin adoption. A fair assessment of human habit is that value is the only thing that matters. The demonstrable scarcity of Bitcoin ensures that new buyers enter the market. Certain Satoshi was aware of this basic feature of Bitcoin scarcity, as the source limit is rarely discussed in the whitepaper. But as the law of force shows, there is something behind this habit. Demonstrable rarity.
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