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Feb 6 14 tweets 5 min read
Building the DPC Model, Part IV
Adjusting the projection line to the diminishing effect of #bitcoin's halving cycle

🧵 of 11

Part I:
Part II:
Part III:
2. The final adjustment to the projection line takes care of the diminishing effect of the halving cycle. The impact of the halving cycle was discussed in Part II. Why is this effect decreasing, and when will it disappear?
3. Recall that the block subsidy (miner reward) is cut in half every 210,000 blocks (~4 years). There are a total of 32 halvings programmed into #bitcoin, which means that the last halving will take place in the year 2136 (provided blocks are produced every 10 minutes overall).
4. If you are interested in the actual code, here is a deep dive: ma.ttias.be/dissecting-cod…

The initial reward of 50 coins is written as 5,000,000,000 sats in the code. 1 #sat is the smallest unit of bitcoin, equivalent to 10^-8 coins.
5. The binary representation of this large number is as follows:

0001 0010 1010 0000 0101 1111 0010 0000 0000
(spaces added for readability)

You can verify that these two numbers are the same by pasting the above into the Calculator app in Programmer mode (Windows or Mac).
6. The #bitcoin code shifts this number to the right by one bit every 210,000 blocks. This is equivalent to a division by 2 (binary = base 2) with the result rounded down (because the last bit is lost). After 32 shifts, we end up with just 1 sat.
7. This means that there can only ever be 32 halvings, after which the block subsidy disappears. When will this happen? 4 years after 2136, or in 2140 (approximate years). So there will be no halvings after 2140, meaning that there can not be a halving cycle effect beyond this.
8. This is why the impact of halvings will gradually decrease until 2140, at which point it will completely disappear. For this reason, we add a daily dampening factor for future projections. This factor is extremely small but will add up over the years.
9. We diminish the halving effect to the 3 sigma level (roughly 1/370) after 132 years. This results in a daily dampening (i.e., raising to the power) of about 1 - 5.33*10^-5 or 0.9999467.
10. You can think of this as the compounding effect of annual inflation. Inflation is not possible to notice on a daily basis, but can become significant over many years or decades. For example, $1 from 132 years ago (1890) is now worth over $30 today: in2013dollars.com/us/inflation/1…
11. We have discussed the four components of the #bitcoin Dynamic Power Cycle (DPC) Model in four instalments titled "Building the DPC Model," Part I-IV.

This thread concludes the series. Any questions?
@RemindMe_OfThis 1 Jan 2140

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More from @DeFi_initiate

Feb 7
#Bitcoin DPC Model - The Collection
It's about time someone collected all the relevant tweets...

🧵 of 7
2. Final implementation of original vision (30 Jan 2022):
Read 8 tweets
Feb 6
Building the DPC Model, Part III
Adjusting the projection line to #bitcoin's daily closing price
🧵 of 6

Part I:
Part II:

Latest weekly model update:
DPC model background:
1. We have seen that the foundation of this model is the power law and the halving cycle. As these two components work with average values, they can sometimes be too slow to adjust to changing circumstances. Therefore, a third component is needed to add agility to the model.
2. The two charts above show the impact of this adjustment due to daily closing prices. The added gold line is the projection line for the base DPC model (power law + halving cycle). There are three essential differences between the base (gold) and adjusted (red) projections.
Read 9 tweets
Feb 6
Building the DPC Model, Part II
Modeling #bitcoin's block subsidy (miner reward) halving cycle

A continuation of

🧵 of 14
1. What is the halving cycle, and why is it important for the price of #bitcoin? Let's review this article again before we go any further: investopedia.com/bitcoin-halvin…
2. Each block includes a reward for the miner who successfully solves the block; this is called the block subsidy. Every 4 years or so (210,000 blocks of ~10 minutes = ~3.99 years), this block subsidy (miner reward) is cut in half programmatically.
Read 19 tweets
Feb 5
How is the projection line of the #bitcoin DPC model built? I'm glad you asked.

For starters, it would be helpful to check the latest update:

For model background, see this post:

Building the DPC Model, Part I - 🧵 8
1. To recap, the DPC model consists of two fundamental components (power law + halving cycle) and two refinements (daily price adjustment + cycle fading):

Context to power law:

Halving cycle explained: investopedia.com/bitcoin-halvin…
2. We start with the power law, which is shown as a green line on this monthly #bitcoin chart (blue candles indicate prices). To build this line, we need to compute linear regression (i.e., straight line estimation, a trendline) for the logarithm of both price and time.
Read 11 tweets
Feb 5
#Bitcoin DPC Model weekly update (Feb 5)
- Projected closing price today: $49K
- Next cycle trough: $18K -43% / +76% (5 Jan 2023 ±74 days)
- Next cycle peak: $380K -51% / +106% (Oct 2025 ±7 months) ImageImage
Legend
- Dark blue: Daily closing price
- Red: Projected price
- Green: Power law centerline
- Light blue: DPC multiple (actual / projected price)
- Grey: Halvings
- Gold: We are here (equivalent points in previous cycles)
- Dotted grey: Power law slope
Model description and background:

A note on accuracy:

Current power law regression parameters:
- Slope (m): 5.88
- Intercept (b): -17.10
Read 4 tweets
Jan 30
The Dynamic Power Cycle (DPC) model of #Bitcoin uses the power law as its base, and adds periodic behaviour resulting from the coin's 4-year block subsidy (miner reward) halving cycle. The implementation of the model now reflects my original vision (conceived in Oct 2021). 🧵 17
1. The red line on the chart above shows how the median price of bitcoin is expected to unfold over the next 3 years. Today's closing price is projected between $30K and $73K (median: $47K). Time uncertainty is ±34 days, and price tolerance is -36%/+56% (at 95% confidence).
2. The cycle trough is expected between Dec 2, 2022, and Feb 8, 2023 (midpoint: Jan 5), and the price at that time is projected at $11-27K (median: $17K). The next halving is expected to occur on Apr 24, 2024, and the price at that time is projected at $29-70K (median: $45K).
Read 20 tweets

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