Will the Power Law Reveal Bitcoin's Predictive Edge?

Bitcoin can't be compared to "normal assets," says Fred Krueger, a Bitcoin investor who uses the concept of 'Power Law' to forecast Bitcoin's price levels.

"Bitcoin is insane … If you try to match Bitcoin to normal assets, you're going to be wrong, both on the upside and the downside," Krueger told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News.

The volatility in Bitcoin took markets by surprise, both when the cryptocurrency surged to new record highs in March, breaching $73,800, and when it dropped to below $61,000 on Tuesday. At the time of writing, Bitcoin was trading at $67,687, down 8% in the last seven days.

The world's largest cryptocurrency is still up around 48% year-to-date, and many analysts, including Krueger, see this as just the start of a massive bullish move.

Krueger projects to see at least $50 billion of inflows via spot Bitcoin ETS this year. "Standard Chartered had come up with that number, and everybody ridiculed them. Now, it looks a little low. The flows are going to increase," he said.

The next big event analysts and investors are watching is the halving, which is estimated to take place on April 19.

The event, which happens approximately every four years, sees the reward for mining a block of Bitcoin halved, reducing the rate at which new Bitcoins are generated. In April, the reward for mining a Bitcoin block will drop from 6.25 bitcoins to 3.125 Bitcoins per block.

Krueger sees Bitcoin hitting this price level before the halving, which is less than a month away.

Krueger's primary approach to Bitcoin price forecasts is through the lens of the "power law" dynamics.

He explains the 'Power Law' model that former physics professor Giovanni Santostasi applies to Bitcoin.

"When you're looking at things in astrophysical time frames, you need to look at things that are very small or very big. So, you tend to look at things on a logarithmic scale," Krueger said. "If you look at the price of Bitcoin in relationship to the logarithm of the time elapsed since the genesis block, you will see that it wobbles around a straight line right from the very first year of Bitcoin to now."

Using this chart, Krueger derives that the actual price of Bitcoin is "time to the power of six."

After existing for 15 years, where will Bitcoin be if the same pattern continues for another 15 years, Krueger asked. "It'll be 2 to the power 6, which is 64 times as high as it is right now. That's what the power law says," he noted.

Another factor Krueger uses to project Bitcoin prices is the adoption curve. Krueger pinpoints precisely where Bitcoin is in this adoption curve.

This article originally appeared on Kitco News