Power laws are mathematical models that describe the relationship between two variables via a power function. Simply put, if one variable grows, the other also grows according to a formula such as y = a-x^n. Such relationships are common in nature, such as the strength of earthquakes or the growth of cities. If you put these logarithmically on a graph, you will usually see a straight line emerge.

According to physicist Giovanni Santostasi, Bitcoin's price can also be modeled that way.

Indeed, applying a linear regression to the logarithm of the Bitcoin price versus the logarithm of time produces a straight line shown as a green line on the graph. Above that is a line showing possible resistance levels, and below that is one indicating minimum support levels. The model clearly shows Bitcoin's volatility, but on average, the growth pattern is a surprisingly accurate mathematical approximation. Not for nothing does Santostasi call his graph: The Power Law Corridor.

Can this model predict Bitcoin's future?

Even more interesting than looking back, of course, is looking forward. Indeed, the straight line representing the trend between price and time can be extrapolated. Based on his model, Santostasi therefore predicts a number of concrete milestones. For example, according to the power-law model, Bitcoin could reach the $500,000 mark sometime between 2025 and 2034. And the magic limit of $1 million per BTC? That would come into view between 2028 and 2036.

So a Bitcoin price of $1 million before 2030 is certainly not out of the question, but would be at the upper end of the expected growth path. This would require an exceptionally strong cycle in which Bitcoin grows faster than the average rate.

How reliable is the model?

So far, the power-law model has proven to be quite robust. All of Bitcoin's historical rates have moved within the corridor outlined by Santostasi. That gives the model some credibility - there have been no major deviations yet. However, the corridor is quite wide: by the end of this year, the model predicts a rate somewhere between $50,000 and $500,000. So that is anything but precise.

On the other hand, the model becomes more accurate as time goes on the deviation between predicted and actual course becomes smaller. The Power Law Oscillator also shows this. At around $90,000, Bitcoin is currently right in line with the model.

But as with any model, it is not infallible. External influences, such as unexpected political decisions or technical problems, cannot be predicted, by any model. A global ban on Bitcoin or a major software glitch could cause the model to snap downward, while, for example, the creation of a strategic Bitcoin reserve could push it upward.

Conclusion

No model is perfect but some are particularly useful. And the power-law model is perhaps the most useful model out there for understanding (and perhaps predicting) Bitcoin's price movement.