While past performance doesn’t guarantee future outcomes, historical price trends, particularly over the long-term, are often used to predict where prices on coins, stocks and other assets might go. One prediction model claims it’s plausible for Bitcoin’s price to reach $6.5 million by 2050.

Developed by physicist Giovanni Santostasi in 2018, the “power law” model uses a non-linear chart to map out the price of Bitcoin over time.

What is the ‘power law’ model?

The “power law” model is simply a price chart with a few indicator lines drawn over it. In the chart the price axis (vertical) is set on a logarithmic scale, while the time axis is set on an inverse logarithmic scale. This essentially stretches the chart in two directions and, as a result, we are able to draw a straight line of best fit (green) through all the data points, making it easier to understand Bitcoin’s price movement more clearly.

If we decide to use this line as a guide to where Bitcoin’s price might be in 10-15 years, we have the projected price of NZ$6.5 million per Bitcoin in the 2030s. You may also notice two other lines: the “resistance” line is drawn by joining the price peaks together in a straight line, while the “support” line is drawn where the prices reach their periodic lows.

The three lines therefore model a possible price range for the cryptocurrency at a certain date in the future.

Is this model reliable?

While the model looks useful, it’s important to know a couple of caveats about any model, whether it’s a simple chart or a complicated AI model.

Firstly, a model is only as useful as the data you use to build it. In the case of the “power law”, the historical data used to draw those lines span from 2011 up to the present, or 13 years of history. If we use the model to project the price range in two to five years, we’ll feel more confident about the result than if the projection is too far out.

Secondly, the model only used one factor to make predictions about the price (the price itself). There are so many other factors that can influence the price of Bitcoin, including the number of users, active transactions, and market sentiment of users currently holding Bitcoin.

Apart from past price performance, we must also look at the performance of Bitcoin from other measurable aspects. We can start from one question: are there any indicators that point to more people using Bitcoin for any purpose?

Bitcoin user data

Fortunately, we can find public information about transaction activities and users’ Bitcoin balances online. One free source is Bitcoin Magazine Pro, which pulls complex blockchain data into easily understood charts and graphs.

A chart that we can look at is the number of Bitcoin addresses with non-zero balance. This gives us a proxy to how many individual users have their money at stake with this cryptocurrency. As you can see, the non-zero balances exceeded 50 million, but a user can have multiple wallet addresses.

What’s important is not knowing the exact number of Bitcoin users, but rather how these change over time. Notice that despite the recent crypto bear market in 2022, the number of non-zero balances did not drop significantly, unlike that in the bear market of 2018-2020.

This shows there is increasing confidence among even new investors who arrived at the scene when Bitcoin was about to crash.

The reason to buy Bitcoin

Publicly available activity metrics can also rise and fall, either with or regardless of the price. Similarly, stockholders may find the company they’re invested in can sometimes lose a streak or two in delivering consistent earnings. Does this mean the stock or crypto is not worth buying any longer?

There are several reasons Bitcoin is attractive to buyers, apart from its price performance. Bitcoin is free from any government intervention or censorship. This allows investors from any part of the world to hold Bitcoin without worrying about a potential shutdown. Bitcoin is also free from the politics of majority shareholders, unlike public companies, which can be influenced by powerful people.

In some sense, Bitcoin is like gold, as both asset classes do not yield earnings, and their price is dependent mostly on market demand. Except, unlike gold, Bitcoin’s supply is verifiable. There will only be 21 million units in circulation (we can hold at least one hundred millionth of a Bitcoin). We may say that gold is scarce on Earth, until we figure out a way to mine gold from asteroids.

Because of this hard limit, Bitcoin’s value could theoretically increase by at least the inflation rate. If everyone stops trading Bitcoin and decides to hold them for a year, any reasonable seller will want to make up for lost money from that year’s inflation.

The big takeaway

Santostasi’s “power law” pricing model can be useful in projecting Bitcoin’s prices in the near future, but may not confidently do so for a longer time frame because the model is only based on 13 years of historical data. It also does not account for other factors that could influence the price of Bitcoin.

However, Bitcoin’s blockchain data can justify some level of optimism as the number of non-zero addresses are seen increasing, which implies increasing confidence in Bitcoin despite its volatility.

Bitcoin also exhibits qualities that traditional assets do not share, giving strong fundamental reasons why future investors would want to hold it. Ultimately, there are dozens of ways to model out predictions and each investor needs to do their diligence and research before making their bets.

What is clear is that one way or another, Bitcoin’s performance to date indicates it’s an asset that’s here to stay.

Disclaimer: Investing in Bitcoin and other cryptocurrencies carries risk. Always do your own research or seek professional advice.