All Your Bitcoin Models Are Destroyed

With bitcoin nearing all-time highs and many commentators in disbelief as its price nears $100,000, Bitcoiners are harkening to an old Michael Saylor prediction

Bitcoin price models have a long history of being destroyed, as evidenced by the Speculative Bitcoin Adoption Price Theory, Stock-to-Flow, Bitcoin Power Law, and Bitcoin Rainbow Chart.

These models have failed to accurately predict bitcoin's price, leading some to conclude that it is impossible to predict the cryptocurrency's future value.

However, others argue that bitcoin's price is still influenced by a variety of factors, and that new models can be developed to take these factors into account.

Ultimately, whether or not bitcoin will destroy all price models is a matter of semantics.

But for now, it seems that the vast majority of models are being destroyed.

Here's a brief overview of each model and how it was destroyed:

* **Speculative Bitcoin Adoption Price Theory:** This model predicted that bitcoin would reach $2,500 by November 2013, due to its increasing adoption.

However, bitcoin failed to even reach $1,200 that month, and it still has not reached anywhere close to near-universal adoption, as the model predicted would have happened by now.

* **Stock-to-Flow:** This model, created by Plan B, used the ratio of bitcoin's existing supply to the new supply being generated to predict its price.

For example, the model predicted that each halving would double the ratio and lead to a new wave of higher prices.

However, bitcoin easily broke this model by failing to reach $100,000 several times in 2021 through 2023, as Plan B predicted.

* **Bitcoin Power Law:** This model, created by Giovanni Santostasi, claimed to be a reliable way to predict bitcoin's price range.

It charted a log of bitcoin’s price against the log of time, and its advocates said the price of bitcoin should grow at a bullish rate over time, rewarding people willing to withstand temporary price slumps.

However, Santostasi eventually acknowledged that his law was not a predictive law at all but rather a descriptive, curve-fit calculation overlaid atop data.

He also later betrayed the Bitcoin maximalists he had attracted and endorsed a so-called power law on Kusama, a small altcoin, leading to his ban from X Spaces by his one-time advocate Fred Krueger.

* **Bitcoin Rainbow Chart:** This chart, popularized by Eric Wall, used chromatic bands to denote possible future price ranges.

The upper edge of the rainbow in red indicated the maximum price range and the lowest violet band indicates how low analysts thought bitcoin could fall.

As Plan B's Stock-to-Flow lost credibility, Wall began joking about the Rainbow Chart.

The playful silliness of the rainbow image became a clever way to profess understanding of the role of pricing models in the bitcoin community while acknowledging its expanding, unpredictable volatility.

Nonetheless, some long-term investors still prefer its colorful predictions.

The Rainbow Chart actually originated in 2014. It faded from popularity for a few years but reemerged after Wall's endorsement in 2020.

Bitcoin broke below the Rainbow Chart during the bear market of 2022, however.

As a good-natured compromise, some people tried to keep its colorful meme alive by adding an indigo color below the violet band.