ABTRACT (INTRODUCTION)
This post attempts to cover the fundamental concepts of 4-year halvings, supply shock and logarithmic regression theory. These concepts are crucial, especially for beginners in understanding the long-term price fluctuations of Bitcoin.
This educational post is in a bid to help provide some insight to how Bitcoin's price action really works. Not bro-science, not social media influences with orgasmic-face thumbnails, but pure economic theory.
HALVINGS
Bitcoin's bull and bear runs are primarily initiated by 4-year "halvings." See Fig 1. These are events hardcoded into Bitcoin's framework to halve the per-block rewards, effectively limiting supply. They occur roughly every 4 years, as they are dictated by multi-variable block time versus the hard cap 210k block per halving.
When supply is diminished, with equal demand, the value of that supply will, over the scale of tens of thousands of buyers and sellers, naturally increase until the market is once again at equilibrium. As projected, the next bull run is set to start somewhere mid-2024. That's basic supply and demand applied to Bitcoin.
Fig 1. A graph showing the total price history of Bitcoin in LOGARITHMIC SCALE. Red vertical timestamps show the time of each network halving. The next expected halving is estimated to be April 17th, 2024.
SUPPLY SHOCK
Markets are not perfect, there is no single person that dictates price, and so it can be subject to human error and phenomena, notable supply-shock. Supply-shock results in short-term speculation (the bull-run), followed by a correction (bear-run), especially as a result of a severe and abrupt supply change, as in the case of Bitcoin.
Market momentum will carry Bitcoin's price past its natural value as dictated by supply and demand equilibrium, hence the bull market. A price correction will then occur in attempt to cut the market back to its equilibrium. See to Fig 2.
Fig 2. A graph in LOGARITHMIC SCALE highlighting the bull and bear runs made by the halvings, which are shown as a red vertical line. The log regression function shown as the purple line serves as a rough approximation of Bitcoin's fair value, or estimated market equilibrium.
LOGARITHMIC REGRESSION
Market profitability will reduce as the market matures. It's the reason why you could've made millions if you invested and sold Bitcoin in the 2010 market cycle, you would have 300x'ed+ compared to 2021's cycle, magnitudes lower at a max profitability of 20x.
Logarithmic regression plays off this idea, in that Bitcoin tends to travel in a logarithmic function over relative appreciation chart/ logarithmic chart. This happens because it would take exponentially increasing demand to maintain a linear path on a log chart. Obviously, the world would run out of people, money and boating accidents for this to occur, hence the regression relationship. A very similar concept to market volatility too, unsurprisingly.
The market volatility, or how violent the ups and downs are, will always get more stable as Bitcoin's market cap increases. Big weighty things are resistant to change, like in physics, politics, economics and like in crypto.
Using lower and higher bounds of Bitcoin's price history, one can devise a very, very rough graph in price probability, not what Bitcoin will be, but could possibly be. Such charts demonstrate the near impossibility of what many online media influences stipulate in their orgasmic, wide-eyed thumbnails and reactions.
Fig 3. A graph of a rough logarithmic regression applied to a logarithmic scale chart of Bitcoin. Obviously, things like inflation, economic situations, world events and disasters can always play a role in price. Take such charts with a fine grain of salt.
TO CONCLUDE
Concepts like halvings, supply shock, market volatility, profitability and logarithms are intrinsic to Bitcoin's price action and how it moves from a long-term year to year basis. Thus, it is vital to understand the fundamentals before delving headfirst into social media trash, hype influences, pump and dumps, and the other vast opportunistic heathen of this planet.
Take and interpret what you want and will. This isn't a hype post, just ya friendly neighborhood crypto dude. I'll try my best to reply to questions (:
