Power Law, Bitcoin & MicroStrategy with Sina | SLP619
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Hi everyone, to welcome back to Steve lavera podcast to brought you by bold the place for you to buy cell and store your bitcoin using a two or three volt over gep bolt dot IO. That is for american listeners. Now, john y.

me. Today is now he is the C O O and cofounder of twenty first capital, his business professor and researcher on bitcoin and economics. And i've been enjoying some of these explanations on things are really be an interesting podcast as a festival. Welcome to the shot of .

thanks for the van. Excited to be with you today.

right? So um I know you've been talking a lot about the power law and doing some statistics and some analysis on this, so I think that would be interesting one. I haven't got an epson on this yet. So do you want to just give us a bit of an overview on the power law and how IT applies the concept of power laws and how they .

apply to yeah so um this to give you a quite background, most of my research focuses on empirical analysis. So what I do is basically I find interesting business problems and then I find data and then I had and answered the question based on the data.

So um essentially a professional econometric, but I haven't I had not tried to do any of that for bitcoin data, particularly because I saw up to most in the last cycle people over I guess over selling these tools. And um I saw so many of my friends um taking too much risk based on uh, weak models and so on. So I held off on that.

But earlier this year, I guess I 嗯 i found， I found a solution, I found a model that appears to be doing well. Then I dig dug deeper, I studied myself. I check ked a lot.

The potential assumptions that are that's behind IT and and IT felt reasonable and robust. So I began working on IT. Of course, i'm talking about the power law model.

This is A A model that demonstrates uh a very, very simple equation that uh described the behavior of bitcoin since day one so essentially uh power law first of all, the name is a little bit confusing for someone who hears IT to the first time, there is no law here. It's basically a power equation. So um you are not your modeling something not just in a lenie fashion.

You have a power curve and IT happens to be fitting the bacon data very well. Just that law word has confused a lot of people um in the statistics there is no determinism um no one is saying that um the future of a complex system like bitcoin is determined by a line or something. We are simply trying to model the pattern.

Now what power low does is IT finds a very interesting equation that shows the growth of bitcoin. Um IT fits very well. IT passes a lot of econometric tests and IT is a very good explanation for the average behavior of bitcoin over the last fifteen years.

Now IT dos IT doesn't say anything about bubbles. IT only models, the average of which you can think of a average as sort of a fair value or some sort of expected value, excluding all the bubbles. But he also has good theory behind IT because in econometric research, uh, if you just show a model that fits the data, uh, no one's gonna take IT because there are many ways for a model to be fitting the data by chance.

We have issues like over fitting, for example, plan bees model suffers from that one and many other issues that can happen a lot of times you have uh other statistic chAllenges. Um you have the gently you have all sorts of things that might make your line fitting the data very well, but not necessarily showing a systematic pattern. Um a very simple way if you make your model super, super complex IT would be able to predict match every fluctuation of biton over the last fifteen years.

Uh it's going to have perfect predictive power or perfect our school on the on the past data, but nothing for the future data. So um power law, I have looked at this equation. For example, one of the simple things you can do is you can run a partial data analysis.

For example, you can build a model only up two thousand sixteen um data points, right? And then if you stop training the model there, take equation and try to predict what was supposed to happen in the future and then match that with with what actually happened. It's very, very interesting.

IT predicts with something within five or ten thousand dollars of difference, the um the model that you would get today. So IT ends up exactly where we are today. What does that mean? That means that we are most likely not over fitting and the model is just capturing something real.

Now what is that real thing? As I was saying that still not enough for me. I need to understand the mechanism. I need to understand the the theory or the mechanism behind IT that that uses logic like data itself is not enough. You have to add logic on top of IT and then the power law as a theory.

Some of the work that you of on for example has done IT IT goes deeper into the um beyond just the Price analysis and shows that all of this is actually happening because adoption is is growing on a certain curve and then Price is actually a function of number of advertising as a proxy of adoption uh following the madcap s law. So um this all shows that is actually adoption that's rapidly growing and the network value is a function of adoption and that's how is growing into the future. So um to summarize, if someone's interested in in a model that shows the historical pattern of bitcoin, the parallel model is is the best tool we have.

Now the second question is how um likely is this pattern to continue into the future? I guess that's where most of the questions, most of the sort of discussion happens. There are some people who think the future is bound by this relationship.

I think it's all probability, alister. I mean, if you want a base case, you can use this as a base case. But um there's per planning of variability around and average that you can model. And um some of the work that that i've been also tried to model that variability around IT and sort of come up with a reasonable boundary of outcomes. But as someone who does this for living a data, when you use data, you've got to be very sort of careful and there just avoid salesmen who try to use a model to sell you some trading tip or something like that.

I say, yeah, okay, so yeah, really interesting. I think a few things kind of come out to me there. As he said, there are times where maybe something fundamental has changed, right? Maybe something in the logic has changed.

So I guess that would be maybe an example where hypothetically, there could be a change in the behavior of the growth of you know of bitcoin, whether that is a use in terms of bitcoin addresses or Price in terms of obviously the exchange, right? Um so I guess when IT comes to assessing the power law or applying you know how we apply power law, how do you think about that? Like what would be a breaking .

thing for you? Yeah so A A bunch of things in there. First of power lot is is modeling scaling variance. Essentially, IT says bitcoins rate of growth is constant as a function of age. For example, if age doubles, Price should double, at least that's on average again, without considering all the bubbles. So um the point is within the model there is this um flexibility to account for an accelerating events like some people say, what if nation states adopted, okay, that's exactly how the the upward slow curve will continue. That's part of IT.

The only reason and a massive change that can happen to kind of derail the model from the historical pattern as if it's like massively more influential than than we think because for example, um if you if you follow a power law pattern, uh you are hitting a million dollars per coin by sometime around to and thirty. How how how is that supposed to happen by continuing the adoption as IT as IT has happened before so far, we have a bunch of corporations, wall street of at least one country, the the way we get to one million, as if more country is join and as if U S. Builds this strategic reserve.

So so someone is massive events or actually part of the pattern that biton has followed. Um we all expect hyper big onion ation at some point and these are all part of IT. Now if these ends up being massively more impact ful, then you might see a deviation.

But um at least for the past fifteen years, we've had so many massive events and they're all going na fall within the same same pattern of of the explained by the power low. Now when would IT fail? FAiling is sort of a again, a probabilistic c thing.

There is no point at which you can say something absolutely feels unless the model is incorrect, he just gets less and less accurate. And you can measure accuracy y by by just looking at how you know the deviation between the line and the prediction. And you can use statistical metrics like our school.

You can also use the um um the the test that I explain the earlier. So next year, for example, we can use the model that we have right now. We shouldn't really use new data like we go and essentially fix our model now wait until next year and see if the pattern of Price followed what the model said last year.

So that and again follow is a problem again is a relativist thing, right? It's all the matter of the percentage, right? So power right now gives you an our score of ninety five percent or something. Um well if that drops to seventy percent, i'm just going to say power lize only seventy percent accurate. So IT just goes down further and further and then with the wider band that IT has, if the accuracy goes down again, you can say um it's just not usable for any decision anymore.

I say yeah so as i'm reading you then as an example, if the are square drops below a sitting value, then you might say, okay, IT just has a lot less explantatory power now compared to before. But I guess up until now, IT has had relatively high or square. And that's why you're talking about IT and you believe it's at least yeah if if our score goes down to .

seventy percent, you're going to say it's only seventeen percent accurate, right? And then that thirty percent could could lead to massively different outcomes, right? So but IT still doesn't mean it's useless at that point. It's explaining seventy percent, but seventy percent may just not be enough for did .

the observer I see yeah okay. And you made some interesting points there as well that. Despite the fact that they could there you have been these big events, whether that government actions like china mining ban or you the shutdown of silver gate and sell on or F T X and all these vous events that if I could, and I guess some of these events can happen on the on the positive side and and on the negative side. Nevertheless, it's still stayed in those kind of averages. Let's say.

let me tell you why that happens from someone. I know you are very, very deep into austrian economics and and I with you on that, we believe human behavior or is very difficult to model. However, the reason of some patterns like this happens is there are physical boundaries in a system.

For example, if you think about a city, for example, cities actually are famous for following a power law pattern. The reason is that you know at another ten percent um growth in the size of the city is is a uh IT IT means completely different things over time. And uh how can I say like adding ten thousand more people um is a lot harder when the city is a small versus is big.

So as a city, it's bigger, its ability to grow even grow faster and it's all a proportional to the existing size. And if you actually draw a math model that um assumes growth is a functional of existing size, that's when you get a power law equation. And these are are basically explaining that in our world, you know there's just how fast you can grow.

There's a limit on how fast a system can grow because IT needs to absorb resources from the outside. And that typically tends to be a function of its existing size. If you work out among all of that math, what comes out of that assumption is a power law behavior.

Viruses behaved like that. There's a lot of you know a solar, uh, the solar system objects in the Cosmos behave like that. Human, some other human systems like a city, as I said, you know, individual people are an unpredictable. But the pattern of growth of a city follows, you know, physical sort, physical resources as well. Those resources put a boundary AK on how fast or how slow the system can grow.

Yeah really interesting. And this is something i've been i've been actually reading. I know jovanni has been recommending this book scale. I believe the guys name is jeffrey west. And when you mentioned some of those examples you made and the interesting one I found was as well, I think IT comes back to what you are saying that there's only so much or there's only so much that I can grow by. And I guess that maybe that just there are a certain natural limits or some outside limits intensive.

How many humans are going to adopt this thing at one time? And so well, we have these kind of crazy bubble and bear seasons in betwen as we've seen kind of these cycles. A nevertheless, there's only so fast you can grow.

Um so I guess he's another question i'm curse to get your view does does power or essentially like a diminishing returns, right? Like we should anticipate that the you know bitcoins let's a ago, is gonna tape down like that to me seems just very logical and intuitive that IT should tape down over time right? Like in the early maybe he could draw like two hundred percent a year. But now it's it's going to have to you know come down at a time. Curious your view .

that yeah I mean, go back to what we discuss earlier. What comes out of the model is if the age doubles Price, not double Price goes up by a certain factor. So the the return, if you look at Price, return is a function of age.

okay? And age one ten percent increasing in age right now is about one year on half, but previously might have been A A couple months, right? So you if you look that way in in terms of age, then the growth is actually constant. But if you look at the linear time, the annual return gets weaker and weaker every time. And this makes perfect sense because, uh, late commerce join when the acid is larger.

And so it's more mature and there is just less potential as IT grows because, uh, there is a limited number of people you can um have joined the network and as more and more people join, well, of course, the future potential is is weaker. But that doesn't mean it's bad or less powerful. IT will still remain as the fast as horse is, just not as fast as I was.

And you can simply look at the historical data, volatility has been going down massively. You can just feel IT plus you can also tested, you know, some of the work i've done actually i've created graphs that shows how well and actually methodical volatilities coming down. And again, we all expected when well street and all those passive buyers and all all the you know non digit investors join um you should expect a lot less volatility.

And and so biton will keep growing, but just more methodical in a more mature way. And that's actually a really good thing. That's what will attract many of the bigger, bigger participants, I say.

And IT could also be that you to your point about volatility, there will be certain investors the bigger they are, the less volatility they are able to tolerate or handle. And so over time, bitcoin is going to grow, obviously. And as vollar tilly comes down, they'll be larger and new investors who are able to deploy the capital in now because the volatility has come to a certain level that they are exact biologically comfortable with. Maybe their policy, you know, for various reasons, IT makes them more comfortable.

Now to, if you remember, Michael sailor also introduce his own models. His models actually explicitly assume that the rate of return goes down.

Perhaps his thing is like right now we are forty five percent a year um in in like twenty years from now, he is so that we go down to twenty twenty five percent year still at that point I can consider um everything else um to twenty years from now, we still are going to be the best performing asset and that's just a data. But psychologically, people want to think next. Sure, we can go to one million. I'm fine with that if we do, but I try to be realistic and and if IT if IT happens, that's awesome.

right? And so I think this is haps. IT can temper people's expectations for the bull run. Because instead of people thinking I were going to a million for sure or what, whatever the crazy numbers and look, some of that is the social media and kind of exaggerate, and that goes to the extremes.

But in terms of what is a realistic expectation, what is a baseline for people to think about interns coming back to what we are saying, there's only so fast that I can grow. Uh, then maybe that's a more interesting way to look at IT. Now I know you've .

done something. Just complete what you said if you went back to the last cycle and say begin a modeling bitcoin when he was at six thousand dollars. So even before the beginning of the last bull run, a power law model would have predicted the top at of seventy k or something like that.

That's pretty good then, because they hit about sixty nine k right?

Yes, if you use a quanta model, actually, yes. So the ninety eighth quanta would cross seventy thousand average, would cross fy. I am not just calling my memory with something like thirty or forty, which the average actually ended up being thirty two, but other models would have said, say, one eighty or two eighty or three hundred, five hundred. Sometimes you remember, like two hundred thousand top Price target was considered very big .

if you had two hundred thousand right days, like four years ago.

Whatever do you want to be excited and feel great or do want to be right? It's all it's, I guess, whatever works for people. But if you want to be right, you you got to follow the data and again, following the data, that should not be dogmatic.

It's all probabilities. You just thinking this system has behaved like this for the last fifteen years. Well, it's not impossible to change. But if you want to begin that from a base case, this is a good place to start .

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Bold don IO. And now back to the show. Yeah I think that makes a lot of sense to me. Um IT is something of i've been sort of watching what you guys are saying and h jv ani and plane and a few people um I I actually do I will be getting plancina on as well.

And i'll probably invite you on as well to talk him at some point bit could explain little bit on this quantity model in some of your thoughts. I know you have a chart where you show a what the quantum model is showing for next year for twenty twenty five. Can you give us just over of you there? What is IT showing or what what is the expectation roughly?

So if you if you begin with a power law model, IT gives you an average value, and average value goes through the middle point of the data, right? So in the top able market and bottom of the bear market, you go significantly around IT. So I began thinking about this deviation.

And IT again, turns out that that deviation follow some rules. IT just can't go an unlimited number higher or lower. However, the problem just because volatility is coming down in the original cycles, we could have gone massively higher than the average at the top and massively lower at the bottom.

And each cycle, that deviation has shrunk in the percentage terms. So um essentially the distribution of Prices around that average is getting narrow and narrower. Um in person is term, of course in dollar value is getting wider. So our existing models as like a regular regression model can only model the average and h it's assuming equal variance over time.

And so you can come up with some bands that tell you like, well, what's the expected range of values in one sigma around the mean? But that has a big assumption of equal variance over time, which is clearly violated. So what i'm trying to do with the quantum l model is just relaxing that assumption and coming up with lines with with h regression lines that um are optimized such a way that they capture, say, the top top five percent of the data or top ten percent or the bottom five percent and so on.

And you can use all these quantities to get a full view of the possible a distribution over time now, so you can run that now and then an extrapolated into future and see what are to put potential values that we might see next year or next cycle and so on, for example. Or something like that would would tell would show that next by the end of next year, we are looking at numbers between the lowest absolute thing is fifty five k and the maximum to eighty eight. So that like if today we completely change our course and go down to a bear market pattern, um at least if we follow historical pattern, huge.

If if we follow that pattern, we go back to fifty five divorce. And then if we know if we continue able market like previous cycles, um it's possible that we we get to two eighty eight, but all those numbers have some probabilities around them. So like probability of getting to one fifty is a lot higher than getting to two eighty eight and so on.

And and probability of getting more than two eighty eight also exists. It's not zero right? There is a probability of getting to five hundred thousand is just too small, right? And i'm cutting IT off at ninety nine percent.

And so so essentially anything that's less than one percent likely i'm not including IT, but it's not technically impossible. Does that make sense? So he gives me a range of probabilities and probabilities is very important.

I mean, IT IT helps me move away from single targets, like which are really hard to to understand and nail and actually don't like single targets because that gives people who are less familiar with statistics the wrong idea, like just disguise as this number. So let's go open a leverage trade that relies on that number and then we get all liquid if that doesn't happen. Um so but the probability tic view is much more honest because anything is possible, right is you can do your best to come up with different likelihood of those events.

I say yeah makes a lot of sense. And so I guess what is IT write then to say the power law trend line sort of for the for the end of next year, for the end of twenty twenty five is approximately one hundred and fifty thousand. Is that roughly what you are saying as well? Because that's kind of the most likely uh the ah the most likely outcome based on that quantum analysis.

Yeah the average will be there, right? But if you but that's just the average right average, basically you can think of IT as combining the ball and and the bar together that should give you the average. But and other people are interested in the top, top could be significantly more than average.

But again, if the pattern continues, you will touch that top and then you will come back down to the average line. And then further, if if we get into a bear market, you go below IT. So i'm much more interested in the average metric because that to me, is the real girl at the network minus the formal. But what gets people excited is, is that maximum Price typically, which is going to be much higher than one fifty.

I believe I say, yeah. And so I guess there's also a few assumptions we're kind of backing into this as well because that is again, we're kind of backing in assumption that ah we're going to hit the top end of next year. Like what if IT goes longer? Like what if we don't do that or what if we hit the top earlier and then we go into a bill cycle, you know like don't none of us know these things, but we just I guess maybe our brains are patterning of past cycles where IT was kind of happening towards the end of the year.

And that's a huge, huge assumption because um IT is possible that we don't get exactly similar patterns uh, of cycles. A lot of things are changing.

Cycles have been typically happening in the past because of the massive effect of havings, right? And if you look at the having the value like to think of IT is a new buyer coming in and just doubling the its bias, right? So it's like a permanent seller now cells half um so it's a constant bit and of course, it's it's it's kind of a smaller amount every day, but he adds up.

So after several months after the having, you begin to see that rise. And then that rise begins a fly wae of the self perpetuating cycle rise goes up, more people learn about IT more people join, more money comes in um expectation goes even higher. And then IT just goes higher and higher and faster and faster until it's saturates all the resources, remember reset.

There is just so much resources you can attract at any point in time IT all saturdays that and then there's just no more new people that are likely at, at this moment to join. And that's when all the last latest people who joined the summing that they're going to go to lambo next week, they see o Price actually not going up and actually beginning to turn. They they sell, new other people sell, more people sell and then the bubble breaks.

So but that that may not happen um exactly like that moving forward because first of all, the asset is much more mature. So the late comer， uh late commerce may not have that much of a effect causing the Price to go massively higher or lower. If you remember last cycle, just one to eat from elan would would move us by ten thousand dollars.

Um now uh, it's the asset is a lot more mature and is going up very methodical. If you've noticed in the last few weeks, we aren't getting we aren't getting the corrections as much as people would have expected. It's just a very slow growth.

Um it's a lot less volatile. Uh, a lot of people are waiting for a crash or correction at one hundred, we will see. But so far, the market just doesn't let you um get get a get a correction is quickly brought up and IT is possible that mining effect is loses its importance moving forward.

Yeah every ycl, it's actually also getting less and less influential and instead, who will have an impact as you big, big wallstreet investors and nation states and other big actors. If you look at the tf action this year in some of the days, one day of purchase t account for one month of the supply coming from miners. So they're just getting less relevant. And I think it's actually the psychological effect is what's left.

Yeah, I think that could be right. And I I I think maybe people are now making too much of the mining factor, at least the having effects now because I think were reaching a point where, you know, in the early years of bitcoin, IT was fifty bitcoin per a block, right? And then IT was twenty five bitter block after four years.

And so the a lot of the supply was, let's say, issued in the first few years of bitcoin. Now it's less of a factor now. So I think what I see is a lot of people just kind of assuming all the mine is, are the only natural sellers and that's IT.

And you that's that's done, right? It's like it's too rough of an analysis. And I think what would be Better is to actually think more about will hang on, what about long term holders? Because there is like a massive amount of long term holders. Maybe some of them are gonna be selling pieces of bitcoin as IT goes up. And this is also where maybe we get waiting more into like the the you know on chain analysis sort of work where they look at, okay, when was the when the decline last move and what's the realized prize instead of the these kinds of metrics s sop and newbery and these kinds of things where they are looking at some of those other metrics. And I think that is a much more, much more detailed analysis and much more, let's say, a high resolution view instead of just saying all the miners only selling half what they good before.

Yeah a very simple way to think of what would imagine in the first few days we had a market of fifty people. If you had two permanent cellars, they would be important. But if you you put that those two people in in a market of a thousand buyers and cellars, they just get bless relevant if they sell more or sell less, all of that will be dileo ted by the other action from everyone else. So um and and again, that's a sign of maturity of the market like IT just gets much more liquid one seller, one buyer, a bunch of cell or a bunch buyers don't really matter much unless you have a global factor.

Now I guess one of the big question that a lot of people will have is okay. So the seem we accept you know the power law and bitcoin applying you for bitcoin Price, what about the underlying denominator? What about if the feet, if something happens on the feet, inflationary side, if the U.

S. Government were to print a lot more money over the next ten or twenty years. Do do you think that could change IT, right? Like if the idea is the underlying dominator where to change dramatically?

Yeah, that's that's a really good question, and we hear that a lot. I'll give you several answers. One of them is like my my good friend smitten with on twitter, just did an analysis yesterday showing that if you are just for inflation, the just as an example, the time you get to one million coin moves three years back.

So that's all the effect of adjustment for inflation could have. So that's one approach. The other approach is what I would say is like the power law model is created on on the debasing field.

So the target is just a dollar. So the the basement is already part of a trend. Now if that debasement significantly increases or decreases, of course things will change. And a smooth analysis shows that you can move away. I can move the targets by a few years, but he wouldn't completely destroy the pattern. The other thing I would say is the the whole theory and logic and the mechanism goes through the adoption, right? So if fear debases or rather things happen, um you are basically finding a certain adoption pattern.

If inflation of field goes from seven percent to ten percent, um you are still looking at the value of the network as a function of adoption and if dollar is uh you know significantly less valuable, IT just um IT doesn't change the value of bitcoin itself um it's just gonna inal change what you see on the chart. So still bitcoin in is is still gonna a function of the um adoption a number of people and inflation might impact IT as I said. But I don't see like massive um change.

Interesting yeah and I just .

in the last fifteen years, we've already included I think yeah I think if you go by safety and measures, fia t is devaluing by seven percent. That's already there. Now it's suddenly that becomes much different. Well, you just can't use dollar to value biton anymore and a power law pattern could also be shown a bit against gold or something else.

I see. Yeah and it's probe. Also a fair to say there was a lot of money printing during the covet era um and the pillow was still IT sounds from what you tell me that sounds like IT was still you know maintaining A A high 2 square or still showing a good explantatory power so I guess um we we might see the same again and and you know maybe there are other elements there as well that maybe um there are other explanations as well that people have given that maybe the future is not gonna like this kind of extreme hyper inflation of the dollar but rather less fea credit will be will be issued such a the creation won't necessarily be that crazy。 Maybe IT all baLances out in a way maybe there are kind of countervAiling forces there. So before we know right but IT is interesting that I think the power law IT might also allow us to, as I said, temporary our expectations .

like we are saying, this system is growing at a certain pattern but inflation would just make your ruler um this functional so that doesn't really matter for the pattern of growth of your system right? This just your measurement gets destroyed that way another way .

to think yeah but I bet I guess I would just mean IT, I guess the point would be sort of okay. Yes, I that could happen. But IT would just mean then you know the if something fundamental has changed that maybe IT changes the logic that, that maybe in going forward, maybe it's not as applicable know .

I guess that would be the way thi I get into a hyperfilm ary phase. agree. And right. So suddenly like the the use case that benefit all that just gets known or much more acceptable to many more people. So that's that's a huge change, I would say.

Yeah but I mean, nevertheless, despite all the crazy events and I mean, there have been many, right, whether we're talking exchange values, government, you know either bands or adoption events, you know there have been so many big events. And despite all these over the last whatever fifteen or almost sixteen years now, IT still maintain this higher square. So I guess IT IT is kind of interesting yeah to me that is interesting. I just I guess I have a fascination .

about and now after like two hundred years, after eleven years of um professional data analytics on business data sets, this is the first time I see something like this.

I still I had a hard time to believe that a financial system follow a pattern like this and um that's why it's been so much time trying to kind of rationalize the the logic and understand logic but the pattern is crazy honestly uh in the bottom of the covet crash remembers he was a fifty percent crash, right IT only went down a quantity once so he didn't actually if if you did have A A quantum model at that point, all that crash would just get you down to go on top one, essentially the minimum that he would have predicted. And these models are not created after the fact this would this would be the same model that you would have created a few years back. And um again, I just did a test a few months back.

A model that you would have created two thousand sixteen would have predicted an average of seventy five by a few months back, which was exactly the Price we were at. So something is happening here. I again, my best explanation is just the way each one of us are.

One node in the network is and in the social network, each one of us are are orange billing a few people. And we just can't, you know, double our productivity or cut our productivity. We are on average. We are Operating at a certain level in terms of our effectiveness to spread the world, and that just causes be going to follow a certain pattern in its growth.

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So keep that in mind and you can find out more over a mental dot space slash accelerator. yeah. fascinating. yeah. So I think it's a good overall guideline.

But certainly, i'm not saying everyone going and bet your life on this or trade on IT or anything like that, that I just found an interesting so of understand a little bit about OK. What is the range of within the probability? What's kind of a realistic thing that could happen? This is kind of crazy, outlandish a is even .

if you own a business, if you own a business, you would look at the growth of your demand in the last five or ten years and you see OK, our demand has grown by ten percent year and so on. And that's a great base case. If you want to have an investment in future in your business, that's a wonderful base case. But that definitely doesn't mean dramatic change cannot happen.

of course. Yeah and that's a yeah it's important for people to um know that also. So I guess switching up a little bit, uh, there's been a lot of discussion about microstrip.

Gy, I know you are commenting a little bit here and this I thought to be good to get you some of your thoughts. I guess let me just sort of set the okay. So just to people know when we're recording, this is november twenty first, twenty twenty four bitcoin Price as we speak.

Now it's about ninety eight actually kind getting close to ninety nine thousand. But and microstrip gy is about four hundred and sixty six. I would just quickly checked exact about four hundred and forty photos as I you know speak right now.

Yesterday would be like five hundred and forty or something but right yes.

that's a little right now. Um and so there's been a lot of kind of I guess some people really bullishness on ma strategy and all the people are sort of really critical of IT and saying, why why is that this you know multiple or premium. Um so you want to offer any of your thoughts how you thinking about this this strange phenomenon yeah .

it's fascinating. You know good. Reminds me of sometime in twenty twenty one, early twenty twenty one or late twenty twenty, I was considering a bus microstrip gy, iran, the numbers.

I realized that that okay, i'm paying a more for every big going that's in this bucket. So I passed on IT and he actually turned out to be a great choice because after that we entered, uh, actually microstrip gy couldn't keep that spread. I'd actually went back down to a nested value of almost one fluctuating around that and also kept all of that during the bear market.

So I ended up like feeling the theory that microstrip gy should have should be valued according to the bitcoin. They have made sense at some point earlier this year. Um the asset value was uh uh was higher than what the market with a Price essentially the market was assigning a negative value to the rest of the business late.

And that would have been a great, great by opportunity. But um other than that, people have really hard time understanding why microstrip gy would trade at a premium. And I had as I said, I had that issue too.

But and I never thought about IT i'm a heart copy coiner. I I just moved out of everything for everything trad. fine.

After I learned about beven, I haven't looked back, except very recently or maybe before buying a new house or something like that. Otherwise, most of my wealth is all the time in bitcoin. And so I just ignore IT.

But recently I looked at IT and I began began to understand IT, uh, more and more. H so essentially what's happening is, um yes, if you buy microstrip gy right now, you are paying three times more than three times the value of bitcoin per share. So that sounds like a bad deal.

However, there are some reasons for this, at least there are reasons for. A little bit of premium. And then you can debate with the premium of three is fine or ten is fine or two. But there should be a premium for a few reasons.

First of all, microstrip gies offering something that is that, that fy investors don't have access to otherwise like many of the institutions like based on just rules and and their charter and saw on they can't buy bitcoin itself, they can buy any commodity, some even can't buy any tf, but they can buy a company, right? So that is some kind of a friction or inefficiency in our trade file system, right? IT doesn't make sense from the pure economic perspective.

It's kind of a it's kind of an artificial limit that government regulation has created a or even institutional rules, but that causes microstrip gy to trade other premium because it's it's benefiting from an orbit Price opportunity that um someone transfer create they create for traffic participants. Other than that, they also h come up with this super interesting oil refinery analogy and they say, okay, we take bitcoin and security curitiba and we turn that into a variety of products. So one of the products they make is a convertible notes.

Convertible notes allows you to buy microstrip gy bonds that guarantee you know your money is not going to be lost, whatever happens a bit coin, you're going to get A A very small amount of return on your money, but the downside is eliminated. But because it's convertible, your upside is also unlimited, because after certain amount of time, you can convert your bonds to microstrip gy shares. So to some investors, this is massive if you are not as as much sold on the value proposition of bitcoin itself, but you want to bet on the opposite, this is not a bad thing.

You you're buying bonds, which uh is very attractive to to many institutions, but you will also allowing yourself to benefit from the possible explosion and in Price of microstrip gy, which is actually happening. So those bonds are actually outperforming everything. And I I think last time I heard some of them even have outperformed bitcoin itself A A bond.

So um that's just because no, it's kind of gives risk avers participant a way to join bitcoin soul um and then microwave dy has many other things like they have very, very active option strating market. Their options are you know some of the hottest. The volume is just massive.

Uh up until a couple days ago, you couldn't have options on um etf. So microstrip gy was the unique tool for that. And uh plus they also have a software business.

Software business is not anything Stellar. It's not growing as fast as a true and so on, but it's Operating and it's generating some cash. Low is a good base. It's something it's a good base to have. And and then and the last thing I see is um microstrip gy can do several things even if you're buying your big coin at three times Price.

All the everything that I explained that allows microstrip gy to borrow a lot of cheap money like just recently I think they were talking about the zero percent convert. If you get something like that, it's basically like you get five years of five, three, four years depending on the contract, five years of free money, and then you're going to get all the benefit, all the appreciation of the big coin. And then the bond holder can only convert them to shares at a premium, like another thirty or forty percent premium into the latest Price.

So it's not really diluted for existing shareholders either. And this kind of financial engineering thing, which is um you know art effect of the way the fear world works, allows microstrip gy to have more bitcoin per share. So if you are today, you overpaying for sam out of bitcoin, um it's not like you're buying any yes, it's you're buying a share of microstrip gies business, which means you own today's bit going plus all the future going.

So depending on the way you want to look at IT, micros would accumulate more and more bitcoin per share. They can do all the things that I said, like cheap money borrowing is on. They can also generate some.

They can also build a business model on their bitcoin and just generate more and more cash flow. They might get into lending their bitcoin ospak. Nars may not like this, but they might do this for a yield of four, five percent.

If you just compound all of these for like ten to twenty years, you'll see today's bitcoin in is actually onna be so many more bitcoins per share in the future and that's a basis for a premium. Now you can argue whether three premium is is high or low, but win market is crazy. No one cares about evaluation, especially like super um a super leveraged um speculative players, the kind of game stop crowd.

They don't care about these things. For the shorter but over time, we might come back to a more reasonable premium. But my argument is the premium is not one to one IT. IT must be higher because microstrip gies is just benefiting from some and arbitrage opportunity right now.

Yeah, interesting. And I think the way I would, let's say, summarize who is doing this. It's people who want levered exposure to bitcoin. I think as Michael has explained, you can loosely think of IT is like a one point five x or maybe a two x of bitcoin.

So people who want to leave red exposure and two people who can't otherwise by bitcoin, right? So there might be people who have their funds caught in some retire account. I know people in the U.

K. Have that issue. Um there might be bond traders or others who either have a fund Mandate or maybe some kind of legal Mandate that stops them um from directly buying bitcoins that this is their way in.

And then as you mentioned, they might want way to get exposure that they can't otherwise. And then the other aspect is, is zero fee compared to an etf. So you know that's also something there.

But in Venus, people would argue that um over time, IT is kind of an implied amount that microstrip gy would be able to stack and maybe once to get to like ridiculous levels that they theoretically ally would would capture in the future. I ort of like well, they unlikely to reach that size. But then maybe the argument is okay.

Well, we're just going to see this. Whatever we're calling a premium or multiple are sort of expand and contract depending on, let's say, where the market IT is ready for in a crazy market. O yeah, maybe the multiple expand and maybe we are the best come back down. What do you .

think exactly? I think, well, it's empirically speaking, it's a lever play on bitcoin right now. If you buy buy the stock does Better in the bull market.

And um at least what we've seen as IT should do much worse in a bar market. So in the best market, IT might come back down to a premium of one or close to IT. But in the bull market, there is just very difficult to figure out like how high I can go. Like I said, there is some fundamental justification for higher numbers, but IT might just be much, much higher what the amount people will pay when the formal kicks, and know no, no one cares about fundamentals, but just use our imaginations, like imagination.

Microstrip gy is already an A I and software business, right? What is IT to stop them from developing some fascinating use case or business model based on bitcoin? They hold maybe they come up with a big bank, maybe they don't know, they create an application and all that, that just can generate much more cash flow, much more interesting business activity on top of their big coin, right? So it's IT shouldn't be understood as just a basket of bitcoin. It's a whole business, right?

yeah. And as he said, IT comes as I said also IT comes back to they have access to very, very cheap capital. That's not something everyday individuals like you and I have.

So there's something there's some value to being able to do that and use this as part of their model. Now I guess one interesting question I have you obviously, as you are also as you're a fan of the power law, the power law enters a bitcoin Price power law. I guess that kind of coming to our earlier discussion, there's only so far they can grow and so on based on you, let's say, four or five years out. What if you eventually gets to a place where you know the the, let's say, the Price that the bond h traders are buying that to get an option you IT effectively is like at a Price that lies is implying much, much a bitcoin Price than what the paralo would allow bitcoin to reach in five years. I'm curious if you know if you if that has played into if how you think about that.

you're saying in terms of microstrip gies gross potential.

right?

yes. So yes, I think you know one of the basic ways to think about our premium is, is how how much sailor can accumulate over time, right? So um to justify a premium of three, you should assume that there is a big coin yelled of five or six percent a year for twenty five years.

So if sailor can access can increase bitcoin pair share by five or six percent for a really, really long time, then the big coin that I buy today with my shares is just going to be tripled. So the premium of three will be justified there. But that's only assuming if Michael sailor can increase the bitcoin holdings by by that amount all all time. But that's just gonna be less and less possible over time.

And I don't know if that inflection point that happens after ten years after fifteen years, but that after some point, uh Price will just goes so high and um the rate of return will will go so low that you have to adjust some of these things now suddenly that one you'll okay sailor would only be able to add one percent BTC yield per year. And then that would just make the uh the discount cash flow analysis that you you could have run previously completely different. And then maybe at that point, I was much smaller than and now premium is justified.

Yeah so totally I agree with that. Um but at the moment, at least for the next couple of years, and that's that may not be in play。 They are still in the know in a very.

very early realistic branch. yeah. And i'm curious your thoughts on if other companies start doing the same playbook, will that you hurt or help microstrip gy? Would IT be that they're gona start also tapping that market that maybe but maybe mr. Or do you think maybe microstrip gy has certain things that make IT unique even amongst, you know the other companies that are .

also trying that same playbook, a bunch things. So one part of the game is, yes, demand will be diluted. Like if if you have a lot more access to a lot more ways to play bitcoin. You may like microstrip gy a little bit less. However, it's a very interesting dynamic because if more and more institutions do the same thing, um first of all, they can never catch microstrip gy and the more they buy, they're just pumping microstrip gies bags so the gap will never close. They'll just so far ahead of everyone else that other people can only just join and then all they do is just pump microstrip gy further.

So I can see a scenario just as marginally IT might get a little bit harder for strategy to acquire new investors, but this will only happen after the the Price has pumped significantly because everyone else has joined, right? So it's a it's it's a very interesting dynamic. It's not like regular competition where all your competence take away from your power.

Actually, more people join micco's, it's more valuable. All that makes microstrip gy more valuable and people like in IT more. And there's there's also some value in scale they have there will always be a much, much larger than everyone else.

And that allows them to have much Better publicity, much Better base. Again, if you think about like different business models that they can applied to their bitcoin holdings, all that will be a lot more efficient when you have a lot more bitcoin. So I don't see that as IT like material issue for microstrip. gy. yeah.

And I think it's really fascinating in terms of like how this is into playing with bitcoin and microstrip gy. Now I mean, the way i'm seeing IT is looks there might be a lot of new people who might first hear about microstrip gy before they go to learn bitcoin. And so maybe this is their power way to also actually learn about bitcoin.

Um now of course, maybe some people kind of get rect out to know like I mean IT is volatile. Leverage is a double age sod. Um so i'm certainly not saying, you know get rid of your called storage bitcoin. I think you called storage bit coin you know that is the most you know for everyone who can afford to and technically achieve IT I think called story is going is the best way um so just an important a reminder of the people but I just find an interesting discussion to see what happens there.

And will there be more news as an example, if microstrip gets included into an index? Or are they going to be passive for that? I mean, this is so many things that could happen over the next year or two that um make IT really, really wild.

But i'll tell you a couple things. Um some of us speak corners might might get formal when microstrip gy is going up so fast. But I have a good message, positive message for you. The higher microstrip gy goes um and the more premium they have under Price.

The only reason they have premium is that investors are counting on microstrip gy to be able to use that premium to sell shares at a much higher Price to investors to buy big coin. So if that premium is so much higher, all that means this over time ah that will that will just pump your own biton, right? So it's basically like microscopic goes up first, but all that value ends up getting channeled back into the network um and every one of us benefit from microstrip gies success. So if the premium goes higher, will experience the effect is just low slowly, much, much more slowly yeah.

as he said. So I guess in other words, as microstrip gies Price, you know pumps higher and higher, sailor and the team of microstrip gy have an incentive to go into equity A T M at the market offering, issue more shares and then go buy more bitcoin, which as you said, raises the Price of bitcoin, obviously. And so that's um an interesting dynamic to watch.

And it's kind of interesting that we've got two sides of the thing of the game to play right. They're got the equity side and the debt side and they've playing both sides of that. So as this recent announcement um where they are gonna, I think there's twenty one billion of equity and twenty one billion of debt, and we will see what happens. I mean, they may they may do another round in the next year or to like on top of that as well.

Yeah, it's the first time the fia psi is helping bitcoin. So it's very famous for people who haven't done a research to call microstrip gy upon zy. Um most I like the traditional analysts, but in fact, IT is a big coin business connected, plugged into the fields.

So I mean, it's what you guys created for yourself. And um microstrip gy is just leveraging IT to buy bitcoin and it's a very interesting and IT has changed the game. I mean, completely changed the game. Someone can issue shares and still make every share more valuable. It's is just crazy.

Yes, it's kind of mind blowing to think about really. So I look I think we're getting to the end of the time, but I want to thank you for joining and listen is going to check out see over twenty first capital and um also you have a show what's the best best bitcoin daughter analysis is the best back on data show is IT yeah yes so yeah is you can look at .

our website um and h we are on youtube and also on x we have a community of best big data. Mostly what we do there is like data analytics. But the core side of our business is also custody.

So we talked about microstrip and everything, but at heart, I believe it's it's self custody that matters, right? So we are offering self custody tools um as well. You can check that out on everything is on our website, definitely check IT. And you can also join our mAiling list where we send occasional analysis and and updates on .

the antacid. All right, well, listen, this links will be in the shows and seeing now. Thank you for your enemy today.

Thank you very much. Was a fantastic C.