The Four Year Cycle Is Not Broken | Matthew Mezinskis

**Matthew Mezinskis** (0:02)
Statistically, right now, according to a quantile regression, we are basically at the bottom. But all it takes is another boom, to pull the trend back up with pretty high confidence. We're going to be at 550, maybe even higher. The world is moving fast. Be prepared for, say, central banks printing money, but Bitcoin doing nothing. Or be prepared for central banks printing money, and Bitcoin also going gangbusters. And Bitcoin is going to be growing on a sustainable curve. Global money is going to be growing on an unsustainable curve with a lot of interest. Those things are going to merge.

**Danny Knowles** (0:39)
I think the place to start, Matthew, is on the power law. Has this drop in Bitcoin price affected that? Is it still accurate?

**Matthew Mezinskis** (0:48)
Are we on?

**Danny Knowles** (0:49)
We're on, man. We're on.

**Matthew Mezinskis** (0:50)
All right. Yes. I don't want to throw off your first question, but because I actually want to start on money supply rather than power law.

**Danny Knowles** (1:01)
Let's just start again, man.

**Matthew Mezinskis** (1:02)
No, no, no, no, no. It's good. It's a good... We're going to do two things today, which I think are very important. But as we were joking pre-show, it's not like there's anything going on in the world. So people need to back up, take a deep breath, touch grass, play with your kids. There are two things with Bitcoin that can really ground you, and I've actually been following them both since 2018 One is the power law, the other is the base money supply. Bitcoin is related to both, and the power law is something that what I plan to show you a little bit later, we can get into it, is when you think about all these technical charts, you know, straight lines, ABC, correction, Elliott Wave, all this stuff. This is always done in the context of an asset that moves exponentially. When I say exponentially, it means it just moves compoundingly, constantly, just like anything you think of, if you need a 10% return in your investment or bond yields 5%, inflation is 7%, you're losing money, whatever. These are sort of Bayesian calculations that everybody does every day, even though they don't know it. This is a, that's what exponential growth is. And you sort of think in probabilities, okay, am I going to be able to cover that or not? The thing is, with Bitcoin, it's totally different. It's totally different. And so these sort of ABC corrections, Elliott waves, straight lines on a log linear chart, they don't work. And the reason is Bitcoin grows like a network. All right, so we're starting out a little bit power, but I want to get back to money supply.
So, a very simple definition of power law, it's like an 80-20 rule. So, if you think about something like Facebook, Amazon, Apple, this is a pure definition of a power law. Those are huge nodes in the system, right? They're centralized, controlled nodes. And they have many connections, but there's a few of them. Okay, so there's a few gigantic nodes with an enormous amount of connections. Now, the other end of that curve, or the other end of that spectrum, if you can just imagine, the Internet has tons of websites, portals, servers, people have private servers, whatever. There are massive amounts of small nodes, right, with few connections. So many, many small nodes, few connections, few large nodes, many connections. That is a power law. And it's unique in that if you apply this concept to the growth of a financial asset, it never works. It just never works. The primary reason for that, we don't have to get too much into the math is, it's just compound interest. It's the way debt works. And it usually you get this unstable result. You get the boom bust cycle. It's really not a conspiracy, just how the math works. So I'll try to show you a little bit of that as well. It's just a boom bust cycle. With a power law, what Bitcoin does, and it is 96% R-squared, it's a very good relationship. We'll get to it. I'll show you the charts.
There is the word, there's a key word that you can think of, and the word is proportional. So Bitcoin grows proportionately to itself over time, unlike exponential growth, which is constant. And then you can also tag on something that usually happens with constant growth, as it can be volatile when it gets really big, often ends in collapse or restructuring. Every company grows that way. It grows constantly. But with Bitcoin, it actually grows proportional to itself over time. So a very simple, simple example of this. And this is the number. This is what the power law tells us, is that for every 13% increase in the life of Bitcoin, in the life of Bitcoin, the price will double. That is the power law of Bitcoin. So that is unlike, say, a stock that gets you 10% or let's say, the rule of 72, it's actually 7.2%.