Is The Bitcoin Power Law Broken? | Matthew Mezinskis

**Matthew Mezinskis** (0:02)
The way that power growth manifests itself is, in the case of Bitcoin, it has started out higher in the early years. It was 1000% a year, right? On a curve, on a trend. Now it's down to about 40% 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 gonna be good, it's gonna be good for Bitcoin holders. On the one hand, the number go up, on the other hand, this is where you get into the idea of, 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.

**Danny Knowles** (1:00)
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, 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?

**Matthew Mezinskis** (1:27)
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 Giovanni, he's kind of got his name to the power law. 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. You know, 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 back past this level of support, you know, it's definitely broken or it's over. So another way to look at that is you just have to, you know, 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, you know, 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 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, they 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.