Latest / Simply Bitcoin / Fred Krueger & Giovanni Santostasi | Bitcoin's Power Law | Simply Bitcoin IRL

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Fred Krueger & Giovanni Santostasi | Bitcoin's Power Law | Simply Bitcoin IRL · Simply Bitcoin

• 0:00
  Yeah, welcome to another episode of Simply Bitcoin IRL.
• 0:03
  I'm super excited about this one.
• 0:06
  Today we have Fred Krueger and Giovanni Santo Stasi in the
• 0:10
  house. Of course, these these gentlemen
• 0:12
  are proponents of the Bitcoin power law, so we're going to
• 0:15
  dive deep into that today. Really looking forward to that
• 0:19
  conversation. Seems to be a controversial
• 0:21
  topic on Twitter. Some people like it, some people
• 0:24
  don't like it, so we're going to explore it.
• 0:26
  I I thought it would be a good idea to put these two gentlemen
• 0:29
  together. Of course, Fred is a social
• 0:32
  media sensation. You know, completely grew
• 0:35
  extremely quickly on Bitcoin Twitter.
• 0:37
  He's an early stage Angel investor.
• 0:39
  He's active on Twitter and YouTube.
• 0:40
  As you guys know, he's the co-author of the big Bitcoin
• 0:43
  book. He's had a lot of exits and he
• 0:45
  has a PhD in math. If my he's a bachelor's in math
• 0:51
  from Cornell University and APHD in operations research slash
• 0:55
  applied math and Stanford University.
• 0:57
  It's very impressive. And of course we have Giovanni
• 1:00
  as well. Giovanni, you have some crazy
• 1:02
  credentials as well. What are those exactly again?
• 1:07
  Yeah, I'm an astrophysicist. I have a PhD in astrophysics,
• 1:12
  but I also work in neuroscience at Northwestern University.
• 1:16
  I was a professor there, research professor.
• 1:21
  Yeah. And I've been a college
• 1:22
  professor for nine years, also in small colleges.
• 1:28
  So another SO2 PhDs joining us on the show today, neuroscience
• 1:33
  and and A and a fellow Bitcoin YouTube.
• 1:36
  This should make a great conversation.
• 1:38
  Fred kind of read my mind in the beginning and I was like, hey,
• 1:42
  you know, I've been talking to a lot of people about this and
• 1:45
  just Fred extracted the thoughts.
• 1:47
  Maybe he could read my private keys through the screen.
• 1:49
  I don't know, but he basically said the power law is under
• 1:53
  attack. So I'm going to start with that.
• 1:55
  Fred, like first of all, I don't think I've ever asked you this
• 1:59
  this question. I've asked Giovanni this
• 2:01
  question, but what is the power law and why are you such a big
• 2:04
  fan of it? Well, I think.
• 2:06
  Our law is what it is, is it's a very straightforward
• 2:13
  relationship between the Bitcoin price and time and sort of A1
• 2:19
  one variable in the in the in the power law, which is time,
• 2:23
  right? And it's if you look at the log
• 2:25
  of time and you plot the log of Bitcoin price, you see that they
• 2:30
  the two have very strong correlations and you can dive in
• 2:36
  as deep as you want, but it's basically it's a very, very
• 2:40
  steady relationship in log space.
• 2:42
  So that's what the power law is. There's a lot more to it.
• 2:45
  You know, Giovanni's was the first person to identify the
• 2:49
  power law and you know, there's been sense other discoveries on
• 2:57
  the power law in particular, you know, the the power law also
• 3:01
  applies for the number of addresses holding a certain
• 3:03
  amount of Bitcoin. It there's a lot and and also
• 3:07
  the hash rate of the entire Bitcoin network.
• 3:10
  So there's a lot of power laws. They all fit together very well.
• 3:13
  And, and that's, that's kind of, that's that's what the power law
• 3:18
  is. And why do I like it?
• 3:20
  Because it's a it explains Bitcoin price very well.
• 3:24
  Gotcha. And I mean, so kind of like the
• 3:28
  pushback that I've received is like no one could chart out, you
• 3:32
  know, the price of Bitcoin in the future.
• 3:34
  There's a lot of variables. And that's really like the
• 3:38
  general feedback that I get from it.
• 3:40
  Some people are big believers in it, some people are not fans of
• 3:44
  it whatsoever. They say you can't predict
• 3:46
  Bitcoin into the future. I guess I'll pass it on to you,
• 3:49
  Giovanni. What would?
• 3:50
  What would your response to that be?
• 3:53
  OK, One, we already did it, so let it.
• 3:56
  A lot of the things that people say about the power law, I think
• 4:00
  there are two main groups of people that don't like the power
• 4:03
  law in Bitcoin. One, people that don't know
• 4:06
  enough because they maybe just heard it, they maybe saw a
• 4:11
  single post or a few posts and they immediate like something
• 4:14
  very typical of the Internet, immediately makes opinions OK,
• 4:18
  instead of researching it, going in depth, they have an opinion.
• 4:23
  So they have to go very quickly on the keyboard and express
• 4:27
  their opinion. That is something that we, at
• 4:29
  least in the Bitcoin community could change because you know,
• 4:32
  we are supposed to be more serious people that are supposed
• 4:35
  to research, understand, verify. You know, I wish that would
• 4:40
  change. If you go in depth, then you
• 4:42
  understand a lot of things. And I think if you are not
• 4:46
  converted and it's not question of converting because it's a
• 4:48
  question of understanding. If you don't understand, then
• 4:52
  maybe you spend all the time and understand it.
• 4:54
  I think once you understand it, you get it.
• 4:56
  It's very and I didn't hear yet one single push back that is
• 5:03
  well informed, that is based on knowledge, that is based on
• 5:07
  math. That is a fair good criticism.
• 5:11
  It doesn't exist. I don't know Fred.
• 5:13
  Fred can verify. I didn't hear one.
• 5:17
  I would love I. Mean completely it's.
• 5:19
  It's always based on this general idea that models are
• 5:23
  bad, right? So that.
• 5:26
  That is that is the first group the second group, sorry Fred,
• 5:30
  when I let you speak, but otherwise people people tell me
• 5:34
  I I try to finish my thought of it was with two groups.
• 5:38
  There is this first group. The second group is people that
• 5:42
  have an agenda because maybe there are other influencers.
• 5:46
  Maybe there are other people that maybe sold for a long time
• 5:50
  their models or maybe they have a particular philosophy about
• 5:54
  Bitcoin. And so they push it back because
• 5:58
  it's kind of a threat for them. It's a threat for their world
• 6:01
  view. And so these are the two group
• 6:03
  of people. And about the general idea that
• 6:05
  we cannot believe the future, we need it.
• 6:08
  Because I came up, after all, I came up with the 1st power law
• 6:12
  relationship in 2013. And in fact, I even posted the
• 6:17
  other day my first discovery of a power law that was between
• 6:22
  price and transactions and price and addresses.
• 6:26
  And still today that relationship is there 9 How many
• 6:31
  is that 11 years later is still there exactly the same
• 6:35
  relationship, exactly with the same exponents?
• 6:38
  It's rare. 11 years, then the one that everybody discusses, it
• 6:42
  is between price and time. I did it almost six years ago
• 6:47
  and since six years Bitcoin has done the same thing.
• 6:49
  So we are already shown that you can use Bitcoin to predict the
• 6:53
  future. So I don't understand the
• 6:55
  statement to go and learn that what is not happening today, we
• 7:00
  already did it. And 2nd, if you look at the
• 7:02
  entire philosophy that that tries to explain with, and I
• 7:05
  understand that is the part with, to be honest, even some
• 7:10
  time for me when I go asleep. If I say, Are you sure about
• 7:13
  this argument about the scale, the scaling variant property of
• 7:18
  Bitcoin, That is a fundamental property that if we have time,
• 7:23
  I'm going more in depth because I like a noise sounds difficult.
• 7:26
  It's a complicated concept. It's something fundamental
• 7:29
  because in in the other hand, it's also very simple.
• 7:33
  I made the example of a child that grows.
• 7:35
  It's like a child that grows. It grows proportionally and it
• 7:39
  has done for all these years. It will continue to do it.
• 7:41
  That is the basis is very different from TA is very
• 7:45
  different from any other type of prediction that people do.
• 7:49
  We are explaining the Bitcoin as a particular characteristic that
• 7:54
  is is growing in a very precise manner.
• 7:57
  And because it has done these for 15 years, 8th order of
• 8:02
  magnitude is going to do it for another order of magnitude.
• 8:05
  It's a very, very simple for if you understand this concept from
• 8:09
  a scientific point of view, it's a very valid scientific
• 8:12
  hypothesis. It stays, it stays an
• 8:15
  hypothesis. Nobody can predict the future
• 8:17
  perfectly, of course, but it's a very, very valid scientific
• 8:21
  hypothesis. And and the other thing, it's
• 8:24
  something that actually should make you understand Bitcoin
• 8:27
  better. So I think it's worthwhile at
• 8:29
  least to understand it before you criticize, studied it,
• 8:33
  understanding and then do your criticisms.
• 8:36
  Here my answer and Fred maybe can add to this.
• 8:40
  So Fred, my, my, go ahead, Fred. No, I I totally agree with
• 8:45
  Giovanni. I think this is a very good
• 8:47
  explanation. I think the you know, I like the
• 8:51
  fact that Giovanni makes a point that this is not technical
• 8:54
  analysis, right? So I mean, a lot of people say
• 8:58
  I'm just going to draw a line through a bunch of charts like
• 9:00
  on trading view or something. And you know, and people always
• 9:05
  say, well, Bitcoin predict proves you wrong, but I'm
• 9:07
  telling. But I think what Giovanni is
• 9:09
  saying is the entire history of price of Bitcoin fits the power
• 9:13
  law. It it actually does.
• 9:15
  There's no part of the the history of Bitcoin that doesn't
• 9:19
  fit the power law and doesn't fit it really well.
• 9:21
  So if you have some reason to think that the power law is
• 9:25
  going to break, you really have to think something very
• 9:28
  different is going to happen in the future then what happened
• 9:32
  over the last 15 years of Bitcoin.
• 9:34
  So, you know, and, and the last thing I'll say is, you know, I
• 9:38
  think, you know, we can talk about, you know, what's going to
• 9:43
  happen with the power law 10 years, 20 years from now.
• 9:45
  But I think really what everybody really cares about is
• 9:49
  what's going to happen with the power law in the next four
• 9:51
  years, right? And the, the, the power law
• 9:53
  makes some predictions and it makes you pretty definitive
• 9:57
  prediction. You know, it sort of says well
• 9:59
  in the, in a by say 20-30, the absolute lowest part on the
• 10:06
  power law is something like two. I, I don't have it in front of
• 10:09
  me, but let's just say it's $200,000 for Bitcoin right by
• 10:13
  20-30. Now, if, if, if, if you had a
• 10:17
  model that would predicted it very well that has all these
• 10:21
  different elements to it, like the number of the number of
• 10:27
  addresses, the number of hash rate and all this stuff.
• 10:31
  And it has its predictive ability.
• 10:33
  And the predictive ability has been so good so far.
• 10:37
  You don't have to call it a law. You can just say it's a very,
• 10:40
  very effective model. But I would say you'd be crazy
• 10:43
  not to at least take that model into a severe account.
• 10:47
  That's all I'm going to say. So, and and again, like I'm just
• 10:51
  trying to be conscious of our audience who's watching this
• 10:55
  that doesn't have, you know, the the academic backgrounds that
• 10:59
  you gentlemen have. So like Fred, what it like
• 11:02
  you're using your background and you see this and how do you
• 11:06
  validate it? Like what is it?
• 11:09
  Did you do something? Is this something that is like
• 11:11
  normal and and mathematics? Like what made you feel
• 11:15
  comfortable to kind of stand behind this?
• 11:18
  Was it? Did you go through all of
• 11:19
  Giovanni's research? Like, what would you point to?
• 11:22
  Like if someone said the power law is bullshit, Like what would
• 11:26
  what would you know? What would you point to?
• 11:28
  Like what? Exactly.
• 11:29
  Would you tell me? I like to hear where you know
• 11:31
  the so I've been, I've been, I've heard that in the last
• 11:34
  recently, OK, a bunch of people have said power law is bullshit.
• 11:38
  Joe Carlisoli has come out and power law is bullshit, Fred,
• 11:41
  because, you know, power laws are not able to predict things.
• 11:45
  And they were, they were used to predict the population of
• 11:49
  Chicago 30 years ago and they failed.
• 11:52
  Well, I don't care about the population of Chicago 30 years
• 11:56
  ago. It doesn't matter to me.
• 11:58
  It's not what what's relevant. What, what's relevant is we have
• 12:02
  this model that is very predictive and it's very
• 12:08
  predictive. And it has worked very well over
• 12:12
  the entire span of Bitcoin, which is as Giovanni said, is
• 12:16
  gone over six orders of magnitude.
• 12:18
  And it's, it's an exceptionally predictive model.
• 12:20
  You don't see these things at all.
• 12:24
  You know, and even, even if you look at stocks like Microsoft,
• 12:27
  which have gone up, you know, 3000 times since the IPO, you
• 12:31
  don't see stuff that's gone up 100,000 times or a million
• 12:35
  times. So, you know, I think this power
• 12:38
  law for Bitcoin is very, very unusual.
• 12:40
  And the fit is just so remarkably good that you know,
• 12:46
  it, it's something like I've been looking at models and
• 12:48
  Giovanni's been looking at models, I've been looking at
• 12:50
  financial models a long time and I've never seen anything like
• 12:54
  this. It's it really is a remarkable
• 12:58
  it, it's not something you just see every day.
• 13:00
  So I'm willing to to step up and say, yeah, I think it's it's
• 13:04
  going to, it's going to continue.
• 13:06
  You know, it would be my thing. Now do I have to say it's going
• 13:10
  to continue for 20 years? I don't, you know, if I think
• 13:13
  it's going to continue for four years, good enough for me, you
• 13:18
  know what I mean? Now, I do happen to think it's
• 13:19
  going to continue for for much longer than four years.
• 13:22
  But let's not even have that discussion.
• 13:24
  Let's just focus on the next four years.
• 13:26
  Do I think Bitcoin price is going to be over $100,000 in the
• 13:31
  next four years? 100% I do.
• 13:33
  Well, OK, if you're an investor and you have an asset that you
• 13:37
  have very high confidence that's going to be that's going to do a
• 13:40
  double in the next four years. Well, you probably want to
• 13:45
  allocate a significant amount of your money to that investment.
• 13:48
  And that that's really kind of the way I'm practically looking
• 13:51
  at this as an investor. And I think it really should
• 13:54
  give you confidence that you want to hold this asset over the
• 14:00
  long term and you want to hold not just, you know, 1% or 2% of
• 14:04
  your net worth in it, but something much more substantial.
• 14:10
  Let me let me answer this question.
• 14:12
  So this a model, but by the way, it's not a model now, it's a
• 14:17
  full theory because I'm going to explain a moment why it's a full
• 14:21
  theory and why it goes beyond being a model has been tested by
• 14:26
  right now, not just me and Fred, but several older people.
• 14:32
  And yes, we have PhDs. And actually this should give
• 14:34
  you confidence because I'm pretty tired with this bullshit
• 14:37
  because it's a huge bill stinky pile of bullshit that people
• 14:41
  say, oh, you are expert. We don't believe in aspects, OK.
• 14:45
  And next time that you go and look at the football game, go
• 14:49
  and look at a bunch of children because they are not, you know,
• 14:52
  experts. So you should not like
• 14:54
  professional baseball player. Why do you like baseball
• 14:57
  players? Because we are professional.
• 15:00
  So being professional is good. You should actually not trust
• 15:04
  them, but you know, listen to them and see what we have to say
• 15:07
  because maybe you learn something.
• 15:09
  Now with Bitcoin and with anything science related, you
• 15:12
  can always take the time, go and verify yourself and there are
• 15:16
  actually hundreds of people that did that.
• 15:19
  It's not very difficult. We are not talking about some
• 15:21
  very sophisticated mathematics where you have to be trained
• 15:26
  over many years to learn it. It's not like that.
• 15:29
  It's actually high school mathematics.
• 15:32
  In some countries like mine, we study logarithms in middle
• 15:36
  school. OK.
• 15:37
  So it's very simple mathematics now in terms of all the tests
• 15:40
  that we did. And at this point, that is that.
• 15:43
  I know Fred Krueger, that is his friend, astrophysicist Stephen,
• 15:50
  that is Cena, that is a professor in finance.
• 15:55
  Maybe some other people that I don't remember that APS gave it
• 15:59
  is an engineer. I don't remember if he's a PhD
• 16:02
  or a master engineer, but he's a very, very professional person.
• 16:05
  There are more and more professionals that are actually
• 16:08
  doing a lot of statistical work. Let me give you an idea of a
• 16:12
  stat work. One of the first thing is to
• 16:14
  calculate these regression coefficient.
• 16:17
  So you calculate these quantity that there are some
• 16:20
  interpretation, but one of the possible interpretation is how
• 16:23
  much of A behavior, behavior of Bitcoin no withstanding going up
• 16:29
  and down etcetera. That is part of the behavior of
• 16:33
  Bitcoin. But the general trend can be
• 16:36
  explained by that straight line that you guys see by looking at
• 16:41
  this R square. R square is a statistical
• 16:44
  quantity that you calculate that is very, very standard.
• 16:47
  It's one of the things that everybody does.
• 16:49
  And Fred was talking about him doing it in financial market.
• 16:53
  I did it in three different fields, that is astrophysics,
• 16:56
  neuroscience and finance. And we always use this quantity.
• 17:02
  This quantity says that 96 percent of a behavior Bitcoin
• 17:08
  can be explained by that straight line.
• 17:10
  That number, obtaining a 96% of 0.96 R square is almost, in
• 17:17
  fact, I would say it's a nerd of in the financial field.
• 17:21
  You don't get that. It's unbelievably crazy.
• 17:24
  OK, I'm a model trading model that lasted a few months because
• 17:29
  when you do this trading models, you maybe find a little bit of
• 17:33
  alpha or a little bit of correlation and even a 0.2
• 17:37
  correlation. It's so silly.
• 17:39
  That gives you an advantage. This is 0.95.
• 17:44
  It's never hurt. In fact, I can tell you when I
• 17:47
  was working, working in medicine, when I was working
• 17:49
  neuroscience in in neurology, having any type of behavior that
• 17:54
  I found, I observed, even I have a patent based on some
• 17:59
  technology that I developed in neuroscience.
• 18:02
  If I was getting 0.70.5, sorry, 0.750.8, it was extraordinary.
• 18:11
  We published a paper, a lot of medicine papers, a lot of
• 18:14
  biology papers, if they get correlation of that type is
• 18:18
  considered miraculous. So almost just in physics, where
• 18:22
  yes, in physics we get 0.999 stuff like that, but because
• 18:27
  they're dealing with particles, not people, a behavior that is
• 18:31
  based not just from people because of course there are
• 18:33
  machines involved in the in the network.
• 18:36
  This one of the things that make people forget that we are
• 18:39
  talking also about energy. We are talking about machines,
• 18:42
  we are talking about algorithm. This is why Bitcoin is different
• 18:46
  from maybe anything else. It makes sense, right?
• 18:48
  It's not that we are coming up with something idiotic that
• 18:51
  doesn't have some real physical reason to to exist.
• 18:55
  So it makes sense that Bitcoin is different from any cars.
• 18:58
  But this type of statistics are nerd of now what do you do with
• 19:01
  the statistics? One of the things you can do,
• 19:04
  but for example, I did, I posted online about this, but also we
• 19:08
  wrote an article about this Sina did.
• 19:11
  You can take a portion of the data.
• 19:13
  For example, let's say you take just 50% of the data and then
• 19:17
  you say, and this also answer the people say, oh, it cannot
• 19:20
  predict the future. Yeah, you can do it also in this
• 19:22
  way, you can pretend to go back back in the past.
• 19:24
  You can say I'm just going to use 50% of the data and I'm
• 19:29
  going to see if this, the prediction of this 50% is
• 19:33
  consistent with the other 50%. This is something that is done
• 19:36
  all the time even to train like for example machine learning or
• 19:42
  AI, etcetera. You take some data, use it as
• 19:45
  what is called training data. You train your model, you show
• 19:49
  what the model predicts, and then you use the next part as
• 19:54
  your kind of future because you didn't include it in your model.
• 19:58
  And Sina did stuff like that many times.
• 20:00
  He's a finance professor. He has a company that consult
• 20:04
  and people pay him to do this type of work.
• 20:07
  And he literally say, and Fred can verify these words and never
• 20:11
  saw anything like this in the financial world.
• 20:15
  These are his exact words. OK.
• 20:17
  So yes, people did a lot of statistical tests now.
• 20:20
  What also I did, I went away from fitting lines because that
• 20:25
  is another criticism of people say, oh, you're fitting some
• 20:28
  line. I went away from that and they
• 20:29
  say, OK, do we have something that could explain this
• 20:33
  behavior? And I went back all the way to
• 20:36
  thinking about Bitcoin as a network and they say, I found
• 20:40
  this literature where we had equations, the general equations
• 20:43
  with explain our network works. Now these equations include
• 20:48
  exponentials S curves, they include Weibull curves.
• 20:52
  They include very, very, very general models.
• 20:55
  Any possible solution you can imagine of the behavior of a
• 20:58
  network. Then I fed the addresses, OK, so
• 21:02
  something unrelated to the price, I fed it to the
• 21:05
  addresses. And then I said, OK, solve these
• 21:09
  equations with whatever solution you like.
• 21:12
  I didn't say find above it law. I made a simulation and the goal
• 21:18
  was to find the best solution that could describe the behavior
• 21:22
  of addresses. The solution without invoking
• 21:26
  directly the power laws are two power laws, one for the
• 21:31
  addresses that here represents the nodes of a network.
• 21:35
  That means, you know, imagine computers connected with each
• 21:38
  other or cells talking to each other.
• 21:40
  So the nodes are the places where everything happens in the
• 21:44
  network and that was a power law, beautiful power law that
• 21:48
  they algo found itself without me telling find a power law.
• 21:53
  And the other solution was for the connections.
• 21:58
  Now, if you ask or maybe connections that are in this
• 22:00
  network, calculate all the connections what they gave me
• 22:03
  again without knowing anything about the price, it gave me the
• 22:07
  power law in time perfectly. I was almost laughing when I saw
• 22:11
  in fact, I should make a video because you can see the computer
• 22:15
  thinking and creating the solution dot by dot because you
• 22:18
  do it day by day, day by day and it creates a beautiful straight
• 22:23
  line in a log, log graph. It is the solution of finding
• 22:27
  the network properties of Bitcoin and that is the power
• 22:30
  law. So we went beyond beyond just
• 22:33
  fitting the line we explained with the cause of this behavior
• 22:36
  is the growth of a network. And if you think about Bitcoin
• 22:40
  as a network, then you have a solution.
• 22:42
  So it's very difficult to attack something like that.
• 22:44
  You know, you have to do it at that level.
• 22:46
  Explain me why this doesn't make any sense, right?
• 22:49
  And so it's well, well beyond just fitting lines at this
• 22:53
  point, so. In, in, in the follow up
• 22:58
  question, seems like Fred dropped out due to a family
• 23:00
  emergency. So it's just going to be me and
• 23:02
  you, Giovanni. But my response to that is what
• 23:06
  events would need to happen. Then I have two questions.
• 23:09
  Let me start with the first one. Doesn't this mean that Bitcoin
• 23:13
  just going to go up forever? Like isn't that what the power
• 23:16
  law says? Like it's just going to continue
• 23:17
  to go up in price forever, OK. OK.
• 23:20
  So for example, if I go back to this model that I explained that
• 23:23
  in fact I want to push a little bit more of this model in the
• 23:26
  next in the future because I want people to switch from oh,
• 23:30
  we are fitting a line. We are actually having a very
• 23:32
  good model of Bitcoin behavior based on network.
• 23:36
  Many people say it's a network. OK, let's start to treat it as a
• 23:39
  net. So one of the component of that
• 23:41
  model is actually a tapering effect.
• 23:45
  So basically one of the solution is or one of the parameters is
• 23:52
  how many people we are going to red peel have a hand, right?
• 23:56
  And that is another thing that you have to understand.
• 23:58
  The end means not the end of the coin, but actually the new
• 24:02
  beginning, right. So when the coin will be adopted
• 24:05
  by big nations, when will be the world standard, the power law
• 24:10
  ends because it's like describing the growth of a
• 24:13
  child. You know, on a certain point a
• 24:15
  child stops growing, right. So we are describing here how
• 24:18
  the child is growing. Once it's grown, it's grown.
• 24:21
  So it's another stage of life. We will not talk about the power
• 24:25
  law of we are all in a very good place financially.
• 24:28
  You know, it's going, I don't know, I don't know.
• 24:31
  And at certain point, maybe in the future, I will start to
• 24:33
  think how that world where the coin is with financial standards
• 24:38
  will work. But right now, to be honest, I
• 24:41
  thought sometime by walking about that world, I don't know,
• 24:45
  right? It's very difficult to even
• 24:46
  imagine how that universe is going to work.
• 24:49
  But right now, like Fred was saying, it's a pity that he left
• 24:53
  because he brings a little bit more I am the more imaginary,
• 24:57
  you know, the more philosophical thinker here.
• 25:01
  Like he's, I love his approach because he's much more grounded
• 25:04
  to Earth based on math and science, but still much more
• 25:09
  simpler. Let's just say, oh, grounded.
• 25:11
  I like that. It's a good balance.
• 25:13
  But you know, Fred was saying, you know, let's focus on the
• 25:17
  next five years. Let's focus on the next 10
• 25:19
  years. We cannot really go too far,
• 25:23
  right? We can do it for fun.
• 25:25
  But then, you know, maybe we should color the red, the power
• 25:28
  law in different colors. So you know, here where we are
• 25:32
  quite sure here where we are a little bit less sure, you know,
• 25:36
  here it's like fantasy, you know.
• 25:38
  So no, the power law doesn't say is going on for web.
• 25:41
  If you take it at face value, yes.
• 25:43
  But if you understand how the model works is that tapering
• 25:47
  effect. It's just that right now when
• 25:49
  you do the solution of that model, it tells you we are very
• 25:53
  far away from that regime where the tapering is going to take
• 25:58
  effect and and it's not going to transform in an exponential
• 26:02
  because already the solution say the exponential solution.
• 26:06
  Again, I will talk about this in the next few days on my ex.
• 26:08
  I will post it. You know, I have a newsletter so
• 26:11
  that people can subscribe if you want, I can give you the link
• 26:15
  and I'm going to post serious articles on these topics.
• 26:18
  But basically in the model there is the possibility for taping
• 26:23
  off. Now another possibility is that
• 26:25
  the temperature off that never happens because if we get again,
• 26:29
  again, if we get hyperbiconization before the
• 26:33
  tapering of happens, then it stops there.
• 26:36
  You know, it could happen in 10 years, in 10 years, maybe there
• 26:39
  is no this saturation effect, right?
• 26:41
  And then some big nation like US decides, OK, let's go Bitcoin
• 26:46
  standard. Then the story ends because you
• 26:48
  will have $1.00 peg to Bitcoin. So it doesn't change.
• 26:52
  Maybe all the all the other nation follows through anyway
• 26:55
  and the international, who cares if Argentina continues to use
• 26:59
  their stupid currency. We don't care.
• 27:01
  What we care is we work when people say, oh, it doesn't work
• 27:05
  using Argentina pieces. Well, it was it works with EUR,
• 27:08
  it works with the Yan, it works with all the stable currency.
• 27:11
  It's a silly, it's like say, OK, it doesn't work with the
• 27:15
  monopolies dollars, you know, it's silly, it's doesn't make
• 27:18
  any sense. But if like it became the world
• 27:23
  standard, then the story ends, right?
• 27:25
  It's a new chapter, but so that could happen.
• 27:29
  So there are two scenarios. One is where there is some
• 27:31
  tapering off that is already included in the model.
• 27:34
  It's just the model says we are far away from that tapering.
• 27:39
  So, but right now we don't have to worry about it.
• 27:42
  And the other is that we get hyperbolicalization before that
• 27:47
  saturation effect. So you will see a straight line
• 27:49
  all the way. It's a straight line by way.
• 27:52
  It's a straight line in the log graph.
• 27:53
  If I can show the graph that I have in my slides, if you don't
• 27:58
  mind. So part of all this is what you
• 28:02
  are arguing, guys, when you are arguing against the power law,
• 28:05
  you're arguing against this. OK, This is because many people
• 28:08
  told me, oh, people don't understand log log graph.
• 28:14
  OK, say, OK, let's do it in a linear graph, right.
• 28:16
  So in the beauty of doing it in the log log graph is that, you
• 28:23
  know, it looks like a straight line.
• 28:25
  So it's simple to understand and and that is the main goal.
• 28:28
  Also, it's a verification that we're dealing with the power law
• 28:32
  because these are how people do it all the time.
• 28:35
  You do a graph in the log log space and you see a straight
• 28:39
  line. That is a power law.
• 28:40
  OK, and the people need to understand power laws are
• 28:43
  everywhere in nature, but it's beautiful.
• 28:46
  By way, the other thing I don't understand people attacking the
• 28:49
  power law is that they don't understand the beauty, the
• 28:52
  philosophical consequences, what they tell us in terms of
• 28:55
  consistency and resilience. Because power laws are
• 28:59
  associated with the anti fragility that are associated
• 29:02
  with resilience, beautiful characteristics that actually we
• 29:06
  talk about become the time in that way and the power law Tell
• 29:10
  us you guys are right. All these beautiful association
• 29:13
  that people do with Bitcoin are expressed by the power law.
• 29:17
  The power law is a mathematical expression of that.
• 29:20
  I don't understand what people will like when they want to be
• 29:24
  power law broken. You want Bitcoin being
• 29:26
  completely random, you know today does this.
• 29:29
  This is actually what we use to Click to actually tell people
• 29:34
  there's no random. So if you look at this graph
• 29:36
  right in the linear space where you have price on the Y axis and
• 29:43
  time in the X axis, these are days from when Bitcoin was
• 29:48
  created. You see this beautiful hockey
• 29:50
  stick? It's almost indistinguishable
• 29:53
  from the naked eye with an exponential graph, right?
• 29:56
  And you can see if I average the price over four years, the price
• 30:01
  basically oscillates because of what you do by averaging over
• 30:04
  four year, you you decrease the bubbles, right?
• 30:06
  You make the bubble less relevant.
• 30:09
  They are still there because they are so huge that they are
• 30:13
  not completely cancel out. But this you can see they
• 30:16
  oscillate around the power law and the power law is that red
• 30:19
  curve. So first of all, do you think
• 30:21
  that this is not bullish? It's super bullish.
• 30:24
  It's just not explosive like a, a real exponential will be.
• 30:29
  By the way, it depends which exponential because for example,
• 30:32
  if you do the same thing with, you know, the SP500, the SP 500
• 30:38
  / a long period of time, you know, we have a lot of data.
• 30:42
  We need to take a lot of data. It's an exponential and you know
• 30:45
  why? Because most of the 99% of the
• 30:48
  growth of SP500 is inflation, and inflation is exponential.
• 30:54
  So exponential is not always good.
• 30:57
  They can be bad. And it's a slow exponential in
• 30:59
  comparison with Bitcoin because it takes a long, long time for
• 31:03
  that inflation to catch up with Bitcoin because Bitcoin is so
• 31:07
  fast relatively too in that silly inflation.
• 31:10
  So this how it should be, right? Because the other thing is, you
• 31:14
  know, Bitcoin is anti inflationary, of course, So that
• 31:17
  means it grows so much faster that inflation when inflation is
• 31:20
  a a small correction. OK, so this is what you're
• 31:23
  arguing when you're arguing this with the power law.
• 31:27
  It's almost a perfect match. It's incredible, right?
• 31:29
  It's crazy. And, and, and this thing, you
• 31:32
  know, it's OK, it's not perfect because there are oscillation,
• 31:36
  but we can include the oscillation, right?
• 31:38
  It's not very difficult. I can make this curve a little
• 31:41
  bit sinusoidal because I can say, hey, include oscillations.
• 31:47
  You know, we have done this all the time.
• 31:49
  Like in these slides, you know, I can include that oscillation
• 31:51
  and say, OK, night mouth, make a model where I have a general
• 31:55
  power law trend, but also include the oscillations.
• 31:58
  You know, it's not difficult. And you can see I can include
• 32:01
  the bottoms, I can include the tops.
• 32:03
  You can add like we do all the time in physics.
• 32:06
  We start with, you know, model that doesn't have air drag.
• 32:10
  You know, when you describe a fall of an object and then you
• 32:13
  say, OK, let's add air drag and let's see what happens.
• 32:16
  You know, it's a correction. It's a small correction that you
• 32:19
  can always include. You know, this is how we do
• 32:21
  physics. You first study what is
• 32:23
  fundamental, what is remain driver, and then you Add all the
• 32:27
  complication. You can add wind, you can add
• 32:29
  everything you want. You know, this is how you do
• 32:31
  science. Oh, and by the way, I want to
• 32:34
  because I see the question. One of the question, one of the
• 32:36
  things that drives me almost nuts all the time is this
• 32:40
  question. And I don't know how intelligent
• 32:42
  people can ask this question is, well, you're doing your
• 32:45
  prediction based on the past. OK, you're right.
• 32:49
  You know why? Because maybe I should use my
• 32:51
  degree in physics much better, you know, and I should invent
• 32:54
  The Time Machine so I can go in the future and I can look what
• 32:58
  the future data is and then use that for my prediction.
• 33:03
  You know, will be a perfect prediction because I went to the
• 33:06
  future. What do you want me to use to
• 33:08
  make a prediction? Of course I'm going to use your
• 33:10
  past. This is how we do it all the
• 33:12
  time. You know when we use, when we
• 33:14
  predict the motion of the planet, so we predict that where
• 33:17
  a probe is going to land within few meters on Mars that we do
• 33:21
  all the time. What do you think we are using?
• 33:23
  The past is the only thing we have access.
• 33:26
  Of course we use the past. That is the only thing we can
• 33:29
  use the everything we do. When you cross the road and
• 33:33
  you're looking left and right, you are looking at the past that
• 33:36
  of what you have done before that if there are no cars,
• 33:39
  right? This is why the universe is
• 33:41
  predictable because it does certain things in a certain way.
• 33:44
  It's not like this cartoons right in the Roadrunner or
• 33:50
  something where you look at the left, you look at the right,
• 33:52
  there is nothing and then a train comes and kills you.
• 33:55
  Reality doesn't work like that, right?
• 33:57
  Reality is predictable and you use the past to make prediction
• 34:00
  of the future. So it's not the person they
• 34:03
  brought that comment there. No, it's not a valid criticism,
• 34:06
  is a stupid criticism. Now the thing you can say is
• 34:09
  this. When you look at financial data
• 34:12
  in general, if you take with you the past, it's very, very, very
• 34:17
  difficult because I have done it so many times, very difficult to
• 34:20
  make any valuable prediction. In fact, one of the errors that
• 34:24
  people do all the time, you make this crazy model that is super
• 34:27
  complicated. You're trying to fit the data to
• 34:32
  the past and then you're using that to make a prediction of the
• 34:36
  future that yes, people confuse because maybe they heard this
• 34:41
  thing and they are not don't understand the details.
• 34:43
  Yes, that is called over fitting.
• 34:46
  So if you over fit the past and now this very complicated model,
• 34:51
  you are going to use it to predict the future. 99% of the
• 34:54
  time with financial data, you will fail.
• 34:57
  But this is the opposite of it. First of all, like Fred says,
• 35:01
  there is only one parameter, so you cannot really overfit it.
• 35:04
  It's almost impossible to overfit.
• 35:06
  It's very, very simple model. And this is not because the
• 35:10
  model is superior, it's because Bitcoin is superior.
• 35:13
  You will not be able to do this with almost anything else.
• 35:17
  With Bitcoin, it works. Why, Why Giovanni?
• 35:20
  Why why? What is it unique about Bitcoin
• 35:22
  that allows you to model this out using the power law, which I
• 35:27
  still don't quite understand, so I still have questions for you.
• 35:31
  What is it about? What is it about Bitcoin that
• 35:35
  makes it unique, that gives you the ability to apply the power
• 35:39
  law on it, therefore giving you the ability to somewhat predict
• 35:42
  its trajectory into the future? What is it about?
• 35:45
  What is it? What is unique about Bitcoin
• 35:47
  that allows you to do that? So that that is, you know, our
• 35:51
  good scientists will think, right, once you find something
• 35:55
  and you verify it and you understand, you know, you say,
• 35:57
  OK, this is not you do by chance or there is something here, you
• 36:00
  then go deeper, right? And you're trying to understand
• 36:03
  what makes it unique. So first of all, what I just
• 36:06
  explained, for example, Bitcoin is not an asset and it's not a
• 36:10
  technology. So it's not an asset.
• 36:12
  So it's not going to behave with the normal logic of demanded
• 36:16
  supply. That is another thing that I'm
• 36:18
  criticizing all the time. Stop talking about demand the
• 36:21
  supply, talk about running out of Bitcoin.
• 36:24
  It doesn't happen. The other day I show these
• 36:28
  things that another analyst, by the way, I like a lot.
• 36:32
  But you know, we disagree on this particular topic.
• 36:34
  His name is V Rational Root. He's fixated, like literally
• 36:39
  fixated that there is some kind of crisis because the available
• 36:44
  supply that is a many coins are still in circulation.
• 36:47
  You know, but it's a silly idea to start with.
• 36:50
  You know, I can explain why, but I say OK, you define this
• 36:54
  quantity that these are many coins where available.
• 36:56
  He's fixated that we are running out of Bitcoin basically.
• 36:59
  You know he doesn't like me saying that, but that is the
• 37:02
  message where people in the community think we are running
• 37:06
  out of Bitcoin. There are more and more people
• 37:07
  all getting Bitcoin. So there are less Bitcoin
• 37:10
  because of the fixed cap. And I went to calculate the
• 37:13
  quantity and they say OK, let's see because these are real
• 37:15
  scientists will do it. Let's see if there is any
• 37:17
  correlation with price. No correlation.
• 37:19
  So I made a joke, you know the Drake the Drake meme where he
• 37:23
  rejects something. So because he was talking with
• 37:27
  what Bitcoin did crew right, and the guys were saying that
• 37:31
  because the power law is nonsense.
• 37:33
  So I made him reject 0.95 correlation, right R square.
• 37:39
  And then the correlation for these things that we were like
• 37:41
  eating, like if it was a hot cake, it's 0.003 something like
• 37:46
  that, like no correlation at all.
• 37:48
  So they like that because he was not showing real data.
• 37:51
  He was just showing oh look, I have this nice little chart, the
• 37:54
  show we're running out of the coin.
• 37:55
  People love it kind of stuff. But when you show if there is
• 37:59
  any real correlation with price, there was none.
• 38:02
  It doesn't price is not affected by that.
• 38:04
  So these are scientists really do it.
• 38:06
  Look at the data, see if there is any pattern that is
• 38:09
  meaningful. Now, if and is not, is not, is
• 38:13
  not an asset, it's a network. So if you start to think in
• 38:18
  terms of network properties, then you realize that OK, now I
• 38:23
  can make a bunch of predictions that I would not be able to do
• 38:26
  if it was a normal asset. Now something that needs to be
• 38:30
  understood on a daily basis, I cannot use this right, at least
• 38:35
  not yet. I don't know, you know, maybe
• 38:37
  there is a way, but right now if you tell me what is the price of
• 38:40
  Bitcoin tomorrow, this approach doesn't work because explains
• 38:44
  the general trend and maybe even the cycles or maybe even portion
• 38:49
  of the cycle where we are in the cycle when the bull run is going
• 38:52
  to start, where the bottom is. So it's very, very precise in
• 38:56
  terms of long period of time, so on the period of weeks and
• 39:00
  months, right. But once you go to the detail of
• 39:04
  every day, yes, there is uncertainty.
• 39:06
  There is noise. What in physics you will say,
• 39:08
  OK, there is this big signal and then there is noise, There is a
• 39:11
  bunch of noise. I cannot predict the noise.
• 39:13
  I don't know if I drop an object from the ground, I don't know
• 39:17
  where the wind is going to blow a little bit, right?
• 39:20
  It's very, very random type of process.
• 39:22
  But I know that the orchard is going to fall.
• 39:25
  You know exactly what it's going to do next and how fast it's
• 39:29
  going to go. So that is noise.
• 39:31
  We're adding noise. So there is some noise.
• 39:33
  So hopefully this is understood and there is no confusion.
• 39:36
  So there is a signal plus some randomness, some noise.
• 39:40
  That noise right now we don't know how to predict.
• 39:42
  OK, it's possible. There is a way, I don't know.
• 39:45
  But right now it's we should treat it as noise.
• 39:47
  Now the general trend is described by these properties
• 39:50
  with our network property and we can calculate the growth, we can
• 39:54
  estimate that the growth is going to continue to do this
• 39:57
  behavior in the near future. Near future means the next five
• 40:02
  years. Are you OK with the prediction
• 40:03
  for five years? Almost nobody does a prediction
• 40:06
  over five years. It's crazy.
• 40:07
  I feel confident different from from Fred that we can go all the
• 40:12
  way to 10 because ten years. So another way of thinking
• 40:15
  instead of time, let's think in order of magnitude because this
• 40:18
  work counts. SO11 of it.
• 40:21
  Let me explain this concept of scaling variants that people
• 40:25
  hear this term and that get turn off.
• 40:28
  It's a very, very simple concept.
• 40:30
  The concept is take a child for example.
• 40:33
  Look at how a child grows. Does a child grows?
• 40:36
  You know, in the beginning we have huge big heads.
• 40:38
  That is why we are so cute. And there are reasons, right?
• 40:42
  There are reasons because of ethical, the brain needs to be
• 40:45
  big from the start, right to do a bunch of things, etcetera.
• 40:48
  And so This is why we get born with these huge big hats.
• 40:52
  It's the biggest that you can have and still being born
• 40:56
  normally. But the, the, the child grows
• 41:01
  and it's limbs, every single little part right now it goes to
• 41:05
  a period where other things are happening, you know, very fast.
• 41:08
  But in general it grows proportional.
• 41:12
  So scale invariance means everything goes up proportional.
• 41:17
  What is proportional for Bitcoin?
• 41:20
  The change in price when looked from a scale point of view.
• 41:26
  And what do I mean for scale? Right?
• 41:28
  In science we have this terminology.
• 41:30
  It's not a difficult context. Scale means 1000, 1010 thousand.
• 41:37
  So if you're looking at the price of Bitcoin, not when it
• 41:40
  changes from 10 to 2025 to 100 hundred to 125 to 100.
• 41:49
  But if you look at how Bitcoin change every time it went up by
• 41:53
  a factor of 10, and then you compare the time, you can see
• 41:57
  that the change in this scale is proportional to the change in
• 42:01
  time. In other words, it took like few
• 42:04
  days to go from, you know, a fraction of a of a cent of a
• 42:09
  dollar to a dollar. It took a few weeks to go from a
• 42:13
  dollar to $10. It took several months to go
• 42:17
  from 10 to 1000. It took years to go from
• 42:21
  thousand to 10,000. It will take a decade to go from
• 42:26
  of about 100,000 where we are ran out to a million.
• 42:29
  You see how it works that every time you go up by a scale of 10,
• 42:34
  you go also in price, you go up also of a scale of 10 in time.
• 42:40
  That proportionality is called scaling variance and is a
• 42:45
  beautiful property of systems, many systems in nature behaving
• 42:50
  that way. And bicorn is one of the
• 42:52
  systems. And once they do that, because
• 42:54
  it's such a fundamental characteristic of a system, they
• 42:58
  continue to do that because it's almost like saying Bitcoin is
• 43:01
  not Bitcoin anymore. So if you want the power law to
• 43:04
  be broken, it means that Bitcoin is not going to be Bitcoin
• 43:07
  anymore. Bitcoin has done this thing over
• 43:09
  all this time because there is a reason is how Bitcoin works, he
• 43:13
  found is in a certain sense is the path of least resistance.
• 43:17
  So it's very clever. It's beautiful.
• 43:19
  People should go around and talk about this all the time.
• 43:23
  Look, bacon is such an intelligent system.
• 43:25
  We found the best way to grow from going from nothing to being
• 43:31
  in the future. The a system that is worth
• 43:34
  financially, you know, 10s of trillions or maybe even hundreds
• 43:39
  of trillions of dollars. And in doing this, he found the
• 43:44
  possible best part. The part that basically see it
• 43:49
  makes me crazy because there are a lot of people, like Sailor,
• 43:51
  for example, that says things and then it doesn't back up by
• 43:56
  things like this, right? And maybe there are political
• 43:59
  reasons for that, whatever. But he he gives some hints, like
• 44:03
  one of the hints is is flying because he's flying as fast as
• 44:06
  he can without breaking his wings.
• 44:09
  That is exactly what the power law is.
• 44:12
  A power law is such a a process where you grow as fast as
• 44:16
  possible without governing all your resources.
• 44:19
  This is why we don't see exponential growth in complex
• 44:23
  beings. You know you have exponential
• 44:25
  growth in bacteria when they reproduce themselves, right?
• 44:29
  And then they die if there is not enough food around.
• 44:32
  With the power law you have a growth that is proportional and
• 44:36
  is pretty fast for the coin because we're talking about the
• 44:38
  power of 6 in time, but it does it in such a way that is
• 44:43
  sustainable. It's the best possible way.
• 44:46
  You are arguing not with Giovanni, you are arguing with
• 44:49
  Bitcoin when you arguing about against the power law because
• 44:52
  it's not a fantasy, it's where scientifically it can be proven.
• 44:57
  It has done this for 15 years and the only thing that is left
• 45:00
  is will it continue to do this in the future?
• 45:03
  Yes, because this is what scale invariant systems do all the
• 45:07
  time. You.
• 45:09
  Know Giovanni, I'm going to play devil's advocate again.
• 45:13
  I don't have I don't have the expertise, but I love that
• 45:17
  you're give you give the example of of every time it it it takes
• 45:21
  double the amount of time to increase double the the size.
• 45:26
  I really like the way that you explain that.
• 45:28
  Now my question to you is what would it take, What would need
• 45:32
  to happen for you to say this power law theory is invalidated
• 45:37
  when when it comes to Bitcoin point, what type of variance,
• 45:41
  what, what data do you need to see to say you know what it
• 45:45
  broke it doesn't fit that model anymore?
• 45:48
  Yeah, it's a bit great is a valid question.
• 45:50
  So there are different ways to think about these.
• 45:54
  One of the most important is to say test, test beds for them is
• 46:03
  this graph here, right. So if you don't mind to show it,
• 46:07
  OK, so this graph, what this graph shows is where really we
• 46:12
  think you know, because still something that we are
• 46:15
  investigating that is the beauty of doing science, right.
• 46:17
  It's a never ending story that we are exploring, trying to
• 46:20
  understand, ignore etcetera. But it looks like this graph,
• 46:26
  it's the real power law. And first of all, how this graph
• 46:29
  is obtained basically is again, it's not somebody drawing a
• 46:32
  line. So I'm going to drawing a line
• 46:34
  here because it looks cool. No, what we did was in saying
• 46:38
  basically answering this, I don't know what happened to my
• 46:41
  graph. Some some boycotting, I don't
• 46:44
  know, it doesn't show anymore Some power law Here you see the
• 46:48
  graph. I don't see it anymore.
• 46:49
  I don't see it, no. Let me let me go.
• 46:53
  Let's see if there is a problem from my side.
• 46:58
  It isn't anything on us, on our side.
• 46:59
  There we go. It's back, OK.
• 47:03
  So what this graph, this graph was, how this graph was obtained
• 47:07
  is basically saying it's a mathematical method.
• 47:09
  They say, OK, I have this particular trend eliminate all
• 47:14
  the points that are an outlier. So they are away from the
• 47:18
  general distribution by a certain amount, right?
• 47:21
  So they look like outliers. Hopefully it's understood, you
• 47:26
  know, let's say in general as a concept, right, and you
• 47:31
  eliminate these outliers and basically are the black dots.
• 47:35
  The black dots you can see are the bubbles.
• 47:39
  So the bubbles, basically the science, you know, the
• 47:42
  mathematics says, I think these outliers, you know, these
• 47:45
  bubbles are something that don't belong to the general trend.
• 47:48
  You know, in fact, you can see in a sense, from an intuitive
• 47:51
  point of view, they cancel each other.
• 47:53
  Look how we leave the red line. We go to the peak and then we go
• 47:58
  back to the red line. Any doubter of the big power law
• 48:03
  has to deal with this because explain me how it's possible
• 48:06
  that this behavior is going on. It's crazy.
• 48:09
  How does he know? And it takes about two years,
• 48:12
  right? It takes one year to go up, one
• 48:14
  year to go down. How do we?
• 48:16
  And by the way, this bubble seems smaller, smaller in time
• 48:20
  because it's an artifact of a power law of a of a log log
• 48:23
  graph. They look compressed.
• 48:25
  It's something that happened because of the type of graphic
• 48:28
  we do. But they all last about two
• 48:30
  years. A bubble, an entire bubble last
• 48:32
  two years. So we go up for one year, then
• 48:35
  we go down another year. How does he know how Bitcoin
• 48:39
  knows that he leaves the red line and two years later needs
• 48:43
  to go back to the red line. It's crazy, right?
• 48:45
  You are crazy if you are attacking this behavior because
• 48:49
  you're you're basically don't believe in your eyes.
• 48:52
  Look at the eyes. It's not mad, right?
• 48:54
  It's eyes and is why is. That a simple Giovanni, sorry,
• 48:58
  sorry to interrupt because I I, I again, I'm not familiar with
• 49:00
  all this. I'm learning as as you're
• 49:02
  talking, is that red? Did you just draw that red line
• 49:06
  is that or is that is that what is that red line following?
• 49:10
  So you do 2 steps. The first one you do this what I
• 49:14
  described you say use this mathematical method is called
• 49:18
  RANSAC and allows you to eliminate the large deviations
• 49:25
  from a trend. So a behavior.
• 49:27
  So if you have a certain behavior, a certain pattern that
• 49:31
  you identify in the data, you say identify all the numbers
• 49:37
  that go very far away from the trend and you do that and then
• 49:41
  you say color code. So the algorithm is all
• 49:45
  algorithm. I never draw anything by that by
• 49:47
  hand. I do the math, do the drawing.
• 49:49
  OK so I go through this process, the algorithm identify these
• 49:55
  data points and they say color code then color me red, black
• 49:59
  all the data that are considered by the algorithm too far away
• 50:03
  from the trend and it colors code all these black dots and
• 50:08
  then color code all the points that belong to the trend and you
• 50:12
  get the blue dots. Now you say, OK, now regress
• 50:17
  that means find in this case your eyes tells you there is a
• 50:22
  straight line, but we could do it with more sophisticated way
• 50:26
  and say find the best model that fits this remaining data.
• 50:30
  But we are going to use a straight line.
• 50:32
  So we are saying find me a straight line that minimize the
• 50:36
  distance of all these points from that straight line and that
• 50:40
  is the red line that you see. So it's all marked OK.
• 50:43
  And that line is what we think is the real power law.
• 50:47
  So there is a particular trend that needs to be interpreted
• 50:50
  because once you get some result in science, then it's a question
• 50:53
  of interpretation. What does it mean?
• 50:56
  What why is doing this? What is going on?
• 50:59
  You know, this is what you do as a scientist.
• 51:00
  You go back and try to ask all these questions.
• 51:03
  So but and then also you try to to sit down and see if there are
• 51:08
  other things you can learn. So the 1st way you can learn
• 51:10
  like I told you. But somehow Bitcoin knows he
• 51:14
  needs to leave that curve at the red line and two years later it
• 51:19
  goes back to that line. What the heck others know to do
• 51:24
  that, right? It needs to be something very
• 51:26
  precise in the behavior that makes it do it.
• 51:29
  Notwithstanding all the things that we do.
• 51:31
  That is probably the things that confuses people because they
• 51:34
  say, well, you know, we are selling and buy and there is
• 51:37
  form and there is China and there is ATF and there is this
• 51:40
  and blah, blah, blah. Yes, it's weird, right?
• 51:43
  Because we are not used to this. But they do exist because for
• 51:47
  example, people have done studies.
• 51:50
  Fred was mentioned in Chicago. I don't know what this Chicago
• 51:53
  is. It's bullshit because I went
• 51:55
  back. I look at the literature there
• 51:57
  are and I posted him on my on my Twitter, but it's an entire book
• 52:04
  called scale that talks about our city grows.
• 52:07
  There are thousands of studies that shows all around the world.
• 52:10
  I was mentioning yesterday a paper that came out like two
• 52:13
  years ago that studied literally thousands and thousands of city
• 52:17
  all over the world. And they all follow power law.
• 52:20
  OK, How it's possible that people come together, all the
• 52:23
  things that are happening, it's the same thing.
• 52:26
  Bunch of people coming together doing a bunch of things.
• 52:29
  In the end, the total behavior can still be explained as a
• 52:33
  power law. Because remember what I was
• 52:35
  telling you about the scaling variance?
• 52:37
  Somehow the system of a city grows.
• 52:40
  It finds because of all interactions.
• 52:42
  Because another things that people need to understand, how
• 52:44
  do we get power loss? We get by interactions.
• 52:47
  So there are small interactions. The math that I use to do that,
• 52:51
  the network equations is all based on the output being the
• 52:57
  new input. So if you have a system like
• 52:59
  that where everything that changes in the system depends on
• 53:04
  these iterations where the output is the new input, then
• 53:09
  you get the power law. And you can imagine how that is
• 53:13
  true for so many things. Like in a city, there are more
• 53:16
  people coming in the city. People from outside see these
• 53:20
  because there is a lot of activity, there is a lot of
• 53:22
  things happening there and they join and that iteration and you
• 53:27
  know when it grows it attacks even more people.
• 53:30
  So that iterations process is what produces the power law.
• 53:35
  They are not that much. I mean they are still magical in
• 53:37
  a sense, right? Magical in terms of learning and
• 53:40
  understanding. It's not magic, it's science.
• 53:43
  But now it makes sense if you are understanding that way.
• 53:46
  Same thing with Bitcoin. I just told you that the growth
• 53:50
  of the price is explained by the growth of addresses and the
• 53:54
  addresses is a in the network. So more activity it happens more
• 53:58
  activity it creates because it attracts more activity.
• 54:02
  So it makes sense, right? If you have an iterative process
• 54:05
  now, why not exponential? Because the other thing that can
• 54:09
  do this right, where you have an iteration over and over again,
• 54:14
  it's an exponential, is because when you look at the equation,
• 54:17
  there is like a damping effect that is time.
• 54:20
  If you combine the two, where there is still growth by
• 54:23
  iteration, but also less efficiency as you go in in time
• 54:29
  in making this this growth, then you get the power law.
• 54:33
  So a power law is like an exponential with a damping in
• 54:37
  time. They are very related to each
• 54:39
  other. The beautiful thing of a damping
• 54:40
  time that some people will hate because say I want exponential,
• 54:44
  I want exponential is that kind of regulates the growth.
• 54:49
  It kind of make it, it's almost like an optimization process
• 54:53
  where it says, OK, I need to grow and I need to do this
• 54:57
  thing, but I need to do it in a way that I don't consume all my
• 55:01
  resources. So this is what different
• 55:02
  differentiate Bitcoin from a sheet coin because many sheet
• 55:06
  coins do that exponential growth and then what happened?
• 55:09
  They crash and they disappear. But the coin to exist need to do
• 55:13
  both. They need to grow crazy, like
• 55:16
  almost like if it was an exponential, but it needs to
• 55:18
  have some dampening that is that dividing, because Frederick can
• 55:22
  tell me, right? You get an exponential if you
• 55:25
  double, double, double every single step.
• 55:27
  But if you add a time factor, if you divide by time, how much
• 55:32
  time is passed from the beginning of this process, then
• 55:34
  you get a power law. It's a beautiful thing.
• 55:37
  In fact, the equations that I use to this to the network model
• 55:43
  that I made as a little parameter Theta of a time.
• 55:47
  And if you change with parameter Theta and you make it 0, you get
• 55:51
  an exponential. If you change with parameter
• 55:53
  Theta and you make it 1, you get the power law.
• 55:56
  And then you think in between and then you can ask the
• 56:00
  computer and say, hey, give me the Theta.
• 56:03
  The best describes this process that I'm observing and the
• 56:08
  answer so you don't assume there is a power law.
• 56:11
  You say give me the best data it can be anything.
• 56:14
  It can go from an exponential to an S curve to a power law to a
• 56:19
  Weibull curve, anything you like.
• 56:21
  Give me the right data for this data.
• 56:24
  And the answer was Theta equal 1.
• 56:28
  It is basically a power law, right?
• 56:30
  You see how it works? So the computer, the algorithm
• 56:33
  is very sophisticated algorithm tells me, hey, we have a
• 56:36
  computer. So to answer your question,
• 56:38
  there are two ways. One, if this thing is broken
• 56:42
  this floor. So if we go too low, let's say
• 56:45
  how much low? I will say if we go for example,
• 56:49
  if we come back and instead of having it's about 60% deviation
• 56:53
  from a trend, but if you draw another line, you know, not draw
• 56:57
  by hand but computer, you draw a compromise between the bubbles
• 57:02
  and the bottom. That is the power law in the
• 57:05
  middle. That is kind of a no compromise
• 57:07
  between the two, Then a 60% deviation from that trend is
• 57:12
  where you find this bottom. So if we go down this bottom,
• 57:16
  let's say we go to 70% or 80%, I will be worried.
• 57:21
  I will start to say, OK, something is different, right?
• 57:25
  Something is different. And that is one of the beautiful
• 57:29
  thing about the power law. It's not where the power law is
• 57:31
  broken, where the power law is going to all these approach,
• 57:34
  let's say, is going to help us to identify changes in Bitcoin
• 57:39
  behavior. Because before we didn't have
• 57:41
  any way to compare. Now we have a way of compare.
• 57:43
  We can say, OK, it is for all this time.
• 57:46
  Now it's doing something different.
• 57:47
  It's still useful, it's still very powerful because it help us
• 57:51
  to identify these changes in trend.
• 57:53
  Now if it doesn't do the same thing it was doing before, we'll
• 57:57
  be able to detect. In fact, you know that data.
• 57:59
  One of the things I want to do as a service, I'm going to make
• 58:02
  a website where people can, you can go and check these network
• 58:06
  parameters. You can check the growth of a
• 58:08
  network, you can check the growth of connections, you can
• 58:13
  check how many connections there are in the network.
• 58:16
  So basically we can make a table and we can update it every day
• 58:20
  or every week and see how these parameters change.
• 58:23
  If that data starts to go towards zero, it means we
• 58:27
  started to go exponential. If it goes above one, it means
• 58:31
  we started to taper, you know, So it's very cool.
• 58:33
  We can monitor it and then we can say, hey, if it is too far
• 58:37
  away. But you know, I want to answer
• 58:39
  you in the quickest possible way and summarize what they say.
• 58:43
  You will be able to see it with your eyes because as you can see
• 58:48
  with your eyes that it follows a power law, you will be able to
• 58:53
  see it with your eyes. It doesn't.
• 58:55
  You know, that is how good and wonderful this approach is
• 58:59
  because it's based on reality. You know you can you, you look
• 59:02
  at the graph and say, whoa, it's not following a straight line
• 59:06
  anymore. You know, it's curving in One
• 59:08
  Direction or another. Your eyes.
• 59:10
  I want you not to trust my math. I want to trust your eyes
• 59:13
  because this is how physics works.
• 59:15
  You know it's a based on reality.
• 59:16
  It's not some abstract thinking. You know, it's something that
• 59:20
  makes sense. You know you will be able to see
• 59:22
  it. Fred, my welcome back by the
• 59:24
  way, and and thank you Giovanni for that.
• 59:26
  Answer. And I think.
• 59:28
  Giovanni makes some really good points here.
• 59:30
  I think one of the things that he says is you should trust your
• 59:34
  own eyes. And I think, you know, I think
• 59:37
  when the stock to flow model came out, I remember I wasn't
• 59:42
  like other people. I wasn't particularly interested
• 59:45
  in it because it just didn't, you know, even though there was
• 59:48
  these claims of this R-squared and everything, it's just, it's
• 59:52
  just seem to contrive to me. But then when I looked at this,
• 59:55
  this, I can sort of immediately see the relationship.
• 1:00:00
  I can trust as, as Giovanni would say, I can trust my own
• 1:00:03
  eyes. Now, I also think it is possible
• 1:00:06
  that this thing changes or quote UN quote breaks.
• 1:00:11
  But that's OK. You know, if this thing breaks
• 1:00:14
  in five years or in 10 years or whatever, it breaks.
• 1:00:17
  It breaks. It's fine.
• 1:00:17
  It's changed. Now.
• 1:00:18
  Maybe it does turn into an S curve.
• 1:00:20
  Maybe it flattens out or does something.
• 1:00:23
  But I think. The chance of it quote UN quote
• 1:00:26
  breaking over the next four to five years is pretty low I would
• 1:00:30
  say. Fred, what would you do?
• 1:00:33
  You use this type of information because you were you were
• 1:00:35
  mentioning it earlier and I kind of want to focus on that, right?
• 1:00:38
  Would you use this information, this, this discovery, because
• 1:00:42
  it's really discovery that Giovanni found would would you
• 1:00:45
  use this and apply it to your own kind of investing strategy?
• 1:00:48
  Because you said, you know, the probability that Bitcoin breaks
• 1:00:53
  100K within the next 4 years is extremely high.
• 1:00:56
  I tend to agree with you. I would say it's even, you know,
• 1:00:59
  I would say that's a little bearish.
• 1:01:02
  Would you? Was, is this, this is the type
• 1:01:04
  of information you would use for yourself?
• 1:01:06
  Would you give this to other, you know, high net worth
• 1:01:09
  individuals that are older that perhaps they don't understand
• 1:01:11
  Bitcoin? Is this something that would
• 1:01:13
  scare them away? How would you use this
• 1:01:15
  information? Let's just take, I was, I was
• 1:01:18
  talking with Jim Bianco, right? And, you know, Jim Bianco makes
• 1:01:21
  a point like somebody in their 60s or 70s, let's say 70s
• 1:01:25
  particularly, right? You know, and they're looking at
• 1:01:29
  something like, you know, the NASDAQ in 2000, right?
• 1:01:35
  Well, they're like, I can't wait 10 years for my to get my money
• 1:01:38
  back. You know, I might need my money
• 1:01:39
  in five years or three years or four years, right?
• 1:01:42
  So I think the real question, and a lot of investors like this
• 1:01:47
  is not what this going to do in 20 years because they might not
• 1:01:50
  even be alive in 20 years or 30 years, right?
• 1:01:53
  I think the question they have is how long is this thing going
• 1:01:58
  to take realistically for me to at least get my money back?
• 1:02:02
  You know, I'm sort of under the worst case or to get part of
• 1:02:06
  part of my money, not a lot of my money back, right?
• 1:02:09
  And I think the power law kind of quantifies that, right?
• 1:02:11
  So, and I think if you you really understand this power
• 1:02:15
  law, you realize that you know, the chance of this thing
• 1:02:21
  completely breaking down for a period of four years or more,
• 1:02:26
  probably pretty low, right? So I would say you can be more
• 1:02:31
  confident than you might otherwise be by looking at this
• 1:02:36
  power law. That's it.
• 1:02:38
  Now, as far as not saying this is a trading tool, I mean, you
• 1:02:42
  could use it for trading, but I think a lot of people are just
• 1:02:46
  using it for position sizing. How, how, how big should you be
• 1:02:50
  right now? If you're very young and you're
• 1:02:53
  starting out and you're investing career and you're just
• 1:02:55
  doing DCA, you don't need the power law, right?
• 1:02:58
  You can just sort of put all your money into Bitcoin.
• 1:03:00
  You like Bitcoin, great. It's going to do well.
• 1:03:03
  If you're if you've got some kind of a more of a finite time
• 1:03:07
  frame, let's just say five years or less than you're, you know,
• 1:03:14
  you kind of need to have a little bit of a sense of the
• 1:03:18
  risk and the downside. That's what I would say.
• 1:03:21
  And, and it absolutely makes sense.
• 1:03:23
  And what would you say, you know, what would you say that
• 1:03:27
  that risk is like at this point? Like I'm, you know, and, and I'm
• 1:03:30
  just, Fred, just to give you a little bit of context.
• 1:03:32
  And I think I've, I told you this the first time you came on
• 1:03:34
  my show, which is I've been in Bitcoin for 1/3 of my life.
• 1:03:40
  I, I've, I've actually had to go back and learn the traditional
• 1:03:43
  financial system after I've been in Bitcoin rather than the, the
• 1:03:47
  other way around. And then I've, I've kind of been
• 1:03:51
  exposed to the traditional financial system in that sense.
• 1:03:54
  So I guess the point I'm trying to make is that I'm, for me,
• 1:03:57
  this is more of like an ideological stance, like this is
• 1:03:59
  more of like you screwed us in 2008.
• 1:04:02
  This is our way out. This is my generations way out.
• 1:04:05
  I don't really see another way out.
• 1:04:06
  That's really how I, I see, I see Bitcoin from, from an
• 1:04:11
  investing perspective. Clearly it's maturing now with
• 1:04:15
  the ETFs, a lot of institutional kind of demand and stuff.
• 1:04:20
  Do you think that's going to be negative for the price action?
• 1:04:24
  Do you think it's going to be a lot more subdued compared to the
• 1:04:29
  the past? You know, a lot of people are
• 1:04:30
  talking about the diminishing returns.
• 1:04:33
  Giovanni, you know you, you've laid it out perfectly.
• 1:04:35
  I'm trusting my eyes. I'm seeing the chart Clearly.
• 1:04:38
  It's showing diminishing returns.
• 1:04:41
  What would you say to people that say, you know, Bitcoins,
• 1:04:44
  you know, the ship has ship has sailed.
• 1:04:46
  You know, I don't have a lot of capital.
• 1:04:48
  I'm 20 years old. I'm just getting started.
• 1:04:51
  You know, these shit coins look awfully good because they have a
• 1:04:53
  lot more volatility. Well, the first thing I would
• 1:04:57
  say is one, the power law should give you a lot of confidence
• 1:05:03
  right now. Every investment of course has
• 1:05:06
  risk, Bitcoin included. When you look, you know you
• 1:05:09
  never look at risk by itself, right?
• 1:05:11
  You look at the ratio between rewards and risks, right, Risk
• 1:05:16
  and rewards. So the risk here with, if you
• 1:05:19
  understand the power law, it's nobody can say zero because you
• 1:05:24
  should go to jail if you say that.
• 1:05:26
  But it's very, very, very small in particular with all the other
• 1:05:29
  things that are happening, the institution adopting it, nations
• 1:05:32
  adopting it and so on and so on. So the risk is very, very small.
• 1:05:36
  One maybe can calculate maybe something that me and Fred and
• 1:05:40
  somebody else can come up and compare the risk of the coin.
• 1:05:43
  Now you can do it with many different way, you know, the
• 1:05:46
  Sharpie or many other things. We can calculate it.
• 1:05:49
  But I, I will say that it's very, very small.
• 1:05:51
  Very words are immense because we are not even now.
• 1:05:55
  Of course, yes, in the beginning because of that factor.
• 1:05:58
  Remember I told you it's like you're riding by a dampening
• 1:06:01
  factor of that is where we're diminishing the corns come.
• 1:06:06
  You know, 10 years ago was the right time to buy Bitcoin. 15
• 1:06:09
  years ago was the right time to buy Bitcoin.
• 1:06:12
  But it's always the right time to Bitcoin because if you look
• 1:06:16
  at the power law, the power law gives you a very good sense of
• 1:06:18
  what that means. Like for example, if you join
• 1:06:21
  today and you wait other 15 years, right?
• 1:06:25
  So if you double the time of existence of Bitcoin, so in 15
• 1:06:29
  years from now, you basically get 2 the time that you're
• 1:06:34
  doubling, right two times to the six.
• 1:06:37
  We are rounding it. We're running that growth to to
• 1:06:41
  time to the six. Two to the six is 6464 times.
• 1:06:46
  You tell me where you get 64 times your investment using
• 1:06:53
  anything else, you don't get it OK in 15 years.
• 1:06:56
  So it is for a young person in particular is nothing because I
• 1:06:59
  can assure you if you are in your 20s or 30s, 15 years fly
• 1:07:04
  OK. They fly incredibly like in 15
• 1:07:07
  years from now. I say where the heck this 15
• 1:07:09
  years went, OK. And at the same time you look at
• 1:07:12
  your wallet, your beacon wallet and you are OK, OK, because 64
• 1:07:17
  times you're whatever investing now.
• 1:07:19
  Now I want to say that this is where maybe me and Fred a little
• 1:07:24
  bit different, because if you are somebody like Fred with, I
• 1:07:28
  don't know, many beaconias and you should not tell us, but I'm
• 1:07:31
  sure quite a bit you are in a different position.
• 1:07:35
  Probably the best thing to do is nothing.
• 1:07:38
  Or maybe you can play a little bit for fun, you know, play.
• 1:07:41
  We have this expression and this is where I maybe things a little
• 1:07:45
  bit too controversial. But again, if you do it with
• 1:07:48
  awareness, if you're doing it with focus and you're doing it
• 1:07:52
  without doing degenerate things, then you can also try to do
• 1:07:56
  this. That is what I suggest as X, you
• 1:08:00
  know, influencer or whatever you want to call me a scientist.
• 1:08:03
  I suggest in particular to the young people to do a little bit
• 1:08:07
  more aggressive move. Because if you start, you know,
• 1:08:10
  we have to be also honest. If you have only $300.00 a month
• 1:08:14
  that you're putting on Bitcoin, you should do it right.
• 1:08:16
  You do DCA, do this on a continuous basis.
• 1:08:20
  But to be honest, yes, you will be in a good place in 15 years,
• 1:08:25
  but you're not going to be a medium.
• 1:08:27
  And we can try to do the calculations.
• 1:08:28
  I think, I think I did it a few times.
• 1:08:31
  You don't quite, you're not quite ready for a time.
• 1:08:34
  One of the things you can do if you want to show my graph, if
• 1:08:37
  you don't mind. And again, please understand
• 1:08:41
  what I mean here. I'm not trying to tell you to do
• 1:08:43
  anything crazy or anything absurd.
• 1:08:46
  You can use the power law to identify these cycles.
• 1:08:49
  Now one has to understand why the power law is based on
• 1:08:53
  thousands of data points and very solid principle.
• 1:08:57
  What I'm telling you next is based on what Bitcoin did in
• 1:09:02
  terms of cycles, because we have two behavior.
• 1:09:05
  There is this long term trajectory and then there are
• 1:09:08
  these cycles, these cycles are very predictable.
• 1:09:11
  They are happening every four years, the top up in a certain
• 1:09:15
  time etcetera. So but you understand with
• 1:09:18
  making start using three data points it's almost irresponsible
• 1:09:23
  but it's all what we have. OK.
• 1:09:25
  So under the assumption that these cycles continue, and I
• 1:09:30
  think I have also very solid scientific arguments why they
• 1:09:35
  continue that we can discuss now another time or people can read
• 1:09:39
  more of my work. If this cycle continues, then
• 1:09:43
  you can try to be a little bit more aggressive.
• 1:09:46
  And what do I mean with that in a very well thought way, decide
• 1:09:52
  it ahead and say, OK, I'm going to take 10 percent, 20%.
• 1:09:56
  I will not go more than 50 percent, 50%.
• 1:09:59
  I think it's a pretty aggressive and kind of balanced approach,
• 1:10:04
  but 10%, nothing wrong. OK.
• 1:10:06
  You take 10% of your asset, sell it when it's red.
• 1:10:11
  And how did I get this chart? I got this chart by taking
• 1:10:14
  deviations from the power law. So the power law basically will
• 1:10:17
  be the red flat line. So it's zero because I'm taking
• 1:10:21
  it off, right? So it's everything relatively to
• 1:10:23
  the trend. So you take and draw the price
• 1:10:26
  of Bitcoin and you can identify very precise areas when it's a
• 1:10:30
  very good idea to buy that have this green area, we can do even
• 1:10:34
  better. I can have other ways where we
• 1:10:37
  can almost zoom in on the bottom itself.
• 1:10:39
  But even if you just do it in a very simple way where you say,
• 1:10:42
  OK, anything below this amount of deviation, it's a good buy.
• 1:10:47
  Everything above, it's a place where maybe I should take some
• 1:10:52
  gains, right? I should sell a little bit of my
• 1:10:55
  Bitcoin with the idea that you want to buy back at the bottom,
• 1:10:59
  right? You save it, you don't spend it,
• 1:11:01
  you don't do anything stupid. You wait until you go back in
• 1:11:05
  the green air. If you do this now, we are not
• 1:11:07
  talking anymore about 64. I did a calculation that is an
• 1:11:11
  extreme calculation. Understand it, right?
• 1:11:13
  Like what is the best possible scenario?
• 1:11:16
  And then you have to go down from that and multiply by some
• 1:11:20
  kind of factor, right? Alpha, 10%, whatever, you know,
• 1:11:24
  split. Explain both your commitment to
• 1:11:27
  this approach and inefficiency. Because we're never going to get
• 1:11:30
  100% right. But if you get, if you got it
• 1:11:33
  100% right, again based under this assumption that everything
• 1:11:36
  repeats the same, we are talking about 1200 pair that is a match
• 1:11:43
  the coin has left if the cycle continues, OK, so now of course
• 1:11:48
  you're not going to get 1200. Do it.
• 1:11:51
  What about 50% that? What about 10% that?
• 1:11:54
  So in other words, you don't get any more 64.
• 1:11:57
  If you are a little bit more aggressive and you try to
• 1:11:59
  understand these cycles and you do it with awareness, with
• 1:12:03
  carefulness, without doing anything, you can maybe you get
• 1:12:06
  100, maybe you get 150. But again, in 15 years, it's not
• 1:12:11
  crazy, it's in completely crazy 19 times in terms of investment,
• 1:12:15
  there is nothing like that. Fred, what what what what do you
• 1:12:19
  think about and? And I agree, I mean 64 X would
• 1:12:22
  be insane. And Fred, what are your
• 1:12:24
  thoughts? Well, my thoughts is the first
• 1:12:26
  question you had, I think is let's go back to that, right?
• 1:12:29
  Because I think that's where a lot of people are getting
• 1:12:32
  confused, right? They're sort of saying, well,
• 1:12:34
  there's, you know, the ship has sailed on Bitcoin.
• 1:12:37
  I need to get involved in dog coins.
• 1:12:40
  OK. And my point to you guys is
• 1:12:45
  there's still a lot of action in Bitcoin, right?
• 1:12:48
  So Bitcoin could go up 3040% a year for the next five years,
• 1:12:53
  maybe even the next 10 years on average.
• 1:12:57
  And those are exceptionally great yields.
• 1:13:00
  You shouldn't be too greedy. Now, if you start saying, yeah,
• 1:13:04
  well, that's not enough for me, I need to go into dog coins.
• 1:13:08
  The problem is you're, you know, dog coins, they could lose 90%
• 1:13:13
  of their value in under a year. So it's just, it doesn't make
• 1:13:19
  sense to say I here's an here's an investment that can give me
• 1:13:23
  maybe 3040% a year and it's not good enough for me.
• 1:13:27
  I need to get 400% a year. And therefore I'm going to risk
• 1:13:31
  it all on something that's a really bad bet and it's going
• 1:13:35
  to, and it's just going to crater my entire position.
• 1:13:39
  So I, I just think that's just bad.
• 1:13:41
  It's not going to do with Bitcoin.
• 1:13:42
  It's just a bad investment ideology.
• 1:13:47
  And I kind of, I made a post about this, which is, look, I
• 1:13:50
  think Bitcoin is not meant for making money per SE.
• 1:13:54
  It's meant for saving the money that you have.
• 1:13:58
  So, you know, you should look at it as you're going to be
• 1:14:02
  increasing your value and purchasing power of every
• 1:14:07
  Bitcoin you buy, that Bitcoin will buy you more house, that'll
• 1:14:12
  buy you more car, it'll buy you more food 10 years from now than
• 1:14:17
  it does today, right? But you know, maybe for 2-3
• 1:14:24
  years it buys you the same amount, who knows?
• 1:14:26
  But it's it generally speaking, is a very good savings thing.
• 1:14:30
  And yeah, I do think it's going to buy you a lot more and it's
• 1:14:33
  going to do very well. But it's also as a very good
• 1:14:37
  downside risk as the power law indicates.
• 1:14:41
  Now, if you go and you say, well, it's not good enough, I
• 1:14:43
  need to go complete D Gen. well, I'm just saying that it's not
• 1:14:49
  smart, right? You should not go into the
• 1:14:52
  worst, you know, dog coin that you can find just because you
• 1:14:57
  want massive, massive volatility and you want to shoot for the
• 1:15:01
  moon. So I'm OK with what Giovanni's
• 1:15:04
  saying. I'm OK with doing some trading
• 1:15:07
  around using the Bitcoin power law, whatever you want to do.
• 1:15:10
  What I'm not OK with is you taking your money and just
• 1:15:14
  putting it on, you know, on the number 22 on roulette because
• 1:15:20
  you're you're going to lose probably so.
• 1:15:22
  Yeah, also, you know, 30 to 40% and overturned that's
• 1:15:27
  compounding, right. So could you talk a little bit
• 1:15:30
  about that, Fred, because like I.
• 1:15:32
  Think it's like you're saying 30%.
• 1:15:34
  But if you compound 3040% for 15 years, that's a lot of money.
• 1:15:38
  Right. Yeah.
• 1:15:39
  I mean, I think Einstein sort of said it.
• 1:15:42
  I think, I think Einstein was the person who said it was.
• 1:15:44
  I think Warren Buffett comp said it again, which is compound
• 1:15:48
  interest. The biggest miracle of of the
• 1:15:55
  the OR the the 5th world wonder whatever it is.
• 1:15:59
  But basically compounding is, is everything, right?
• 1:16:03
  So if you can compound out and you don't need to compound out
• 1:16:06
  at 40% either. You can if you compound out at
• 1:16:09
  and 15% would be great over a long period of time, right?
• 1:16:14
  So, yeah, unless you're unless you're Joe Biden, you've got a
• 1:16:18
  few more years, right? Joe Biden, I wouldn't recommend
• 1:16:24
  he take a massive position in Bitcoin because he, you know,
• 1:16:28
  he's kind of closer to the end of his life, you know, So maybe,
• 1:16:34
  maybe, maybe a 20% position for Joe Biden.
• 1:16:38
  If the rest of us who weren't Joe Biden yet, you know, we're
• 1:16:43
  all going to beat Joe Biden. Let's not get ourselves right.
• 1:16:47
  We're all going to be, you know, if we ever make it to that age,
• 1:16:50
  we're we're not going to look that great.
• 1:16:52
  You know, at some point we all get there, but I don't really
• 1:16:56
  want to make fun of them. But you know, if you got a few
• 1:17:00
  years in front of you, it it makes sense to be more to have a
• 1:17:05
  longer term time horizon, right. So that's, that's all I'm
• 1:17:09
  saying. And I think, yeah, you, you make
• 1:17:12
  a very good point that, you know, you took it.
• 1:17:14
  Let's just let's just do a just thing, a simple math, let's say
• 1:17:18
  1.4 to the power 10 OK, that's 29 times right.
• 1:17:25
  So if you could do, if you could do 40% per year, right, for 10
• 1:17:31
  years, right, You don't get, you know, four times your money,
• 1:17:38
  right? You don't get you get 29 times
• 1:17:41
  your money. So these things, these things
• 1:17:45
  kind of compound out and they make they make it very, very
• 1:17:48
  attractive and you get a 29 times pre tax.
• 1:17:51
  You don't have to pay any tax if you don't sell your Bitcoin,
• 1:17:55
  right? So I think that's the other
• 1:17:57
  thing that's very important to realize that you should look for
• 1:18:00
  something that's very tax efficient, right?
• 1:18:04
  So just buying and selling, buying and holding your Bitcoin,
• 1:18:07
  it's very tax efficient and it's the best one of the best ways
• 1:18:11
  that you can make money. Now, if you find something
• 1:18:15
  that's as good as Bitcoin starts spreading your risk, by all
• 1:18:19
  means, OK, I have not found something quite as good as
• 1:18:23
  Bitcoin. So I'm I'm long some QQQ's
• 1:18:26
  right, because I think they're pretty good.
• 1:18:29
  They're nowhere near as good as Bitcoin right?
• 1:18:31
  I don't like them at all as much as Bitcoin, but but I'm OK with
• 1:18:38
  owning some stocks, right? I'm OK with owning some real
• 1:18:42
  estate. But you have to realize that
• 1:18:46
  the, the growth thing here in My Portfolio is Bitcoin.
• 1:18:50
  So you know, I, I think, you know, I think this you want to
• 1:18:56
  try to get a very good compound growth and you want to get it
• 1:18:59
  over a significant period of years, right.
• 1:19:03
  Yeah, absolutely. And I agree.
• 1:19:06
  I I agree with both you gentlemen and this is a in a
• 1:19:10
  fascinating conversation. You guys are, you know,
• 1:19:13
  definitely have accomplished so much in your lives and.
• 1:19:15
  There's another There's another comment in the in the thing
• 1:19:19
  about maybe Giovanni wants to address, which is on the
• 1:19:22
  Ethereum. Is Ethereum a power?
• 1:19:26
  Level. So in a set of point I want
• 1:19:29
  almost to make a table of some of the main alt coins.
• 1:19:36
  Let's call them that if we don't want to call shit coins some of
• 1:19:39
  the outs in relation to the power law.
• 1:19:42
  So maybe we can even like index in terms how well the fit of our
• 1:19:46
  law, right? If the power law is the standard
• 1:19:49
  of being of doing the right thing in terms of growth, then
• 1:19:55
  how close we are When I did it with the theorem that R square,
• 1:20:00
  for example, was around 0.65. You know that and that number
• 1:20:05
  you can get it almost by. Randomness you know, if you have
• 1:20:08
  some randomness that you know kind of grow time because
• 1:20:12
  Ethereum did grow, then you get almost the same result right by
• 1:20:18
  by doing this R square kind of things.
• 1:20:21
  So, so far I didn't find really anything that meets all the
• 1:20:26
  criteria because the other criteria that is very important
• 1:20:29
  in terms of having a very good power law is also how much of A
• 1:20:35
  span you have. So if you have.
• 1:20:37
  Giovanni, stop for a SEC. What does that mean?
• 1:20:39
  Right, so it says you, you did the calculations.
• 1:20:42
  Ethereum is on .65. Is that the number you said?
• 1:20:45
  Yeah, the R square is 0.65. So what it what?
• 1:20:49
  So for us that don't have a background in mathematics, what
• 1:20:52
  does that mean? What is the significance?
• 1:20:54
  Of that number. OK, so if you put, if you draw,
• 1:20:57
  if you make a drawing and I will have to pull it up, you know.
• 1:21:01
  So let me describe it because otherwise it will take me too
• 1:21:05
  long to find the graph. You see this thing, right?
• 1:21:09
  You drove a log and the log, and then you see this behavior of
• 1:21:14
  the price. You can see it again with your
• 1:21:17
  naked eye. It doesn't follow.
• 1:21:20
  It's almost striking. When you see the price of
• 1:21:22
  Bitcoin, it looks straight, right?
• 1:21:25
  There are these oscillations where they go back and forth in
• 1:21:28
  a very regular manner. You know, they kind of cancel
• 1:21:30
  each other. That doesn't happen.
• 1:21:32
  And the number 0.65 describes there.
• 1:21:35
  That is a very bad feat, right? That I told you.
• 1:21:39
  When I look at the biological data, you get maybe 0.70.758.
• 1:21:45
  So it means that 80% of the behavior that you're trying to
• 1:21:49
  describe through this straight line, it's consistent with the
• 1:21:53
  underlying data. In the case of the coin, the of
• 1:21:56
  Ethereum is 65 and you will think well, 65 is good enough.
• 1:21:59
  It's not because you know, this in fact, in a certain sense, we
• 1:22:05
  are raising the standard and say unless we this we see this
• 1:22:10
  incredible, beautiful feat, we should not call this a power
• 1:22:13
  law. So in a certain sense, we are
• 1:22:14
  actually making the claim about the con even more honest that,
• 1:22:18
  you know, we're saying, hey, you belong to the club only I would
• 1:22:22
  say unless I see 0.9, I I don't trust it, you know, and the
• 1:22:27
  other thing I was telling you is also the span.
• 1:22:30
  I mean, orders of magnitude that the the power law covers because
• 1:22:35
  remember I told you it's really a discussion about the scaling
• 1:22:40
  properties, right? When you're talking about power
• 1:22:43
  laws and with Ethereum, we don't have an incredible range of
• 1:22:47
  scales that we had with Bitcoin. But in general, yeah, it's not a
• 1:22:51
  good feat. And many people say, well, why
• 1:22:53
  not? Because we know already the
• 1:22:56
  answer. It's the network effect, right?
• 1:22:58
  And it is why it's important to understand Bitcoin as a network.
• 1:23:02
  Once you have a a system like Bitcoin where people join and
• 1:23:07
  and participate to this network, there are there is no
• 1:23:10
  competition. Everything else is not like
• 1:23:13
  again, Sailor says that, but it's not second best.
• 1:23:16
  It's not this doesn't even matter with your second is a is
• 1:23:19
  a win all scenario, right. The dominant network that is
• 1:23:24
  Bitcoin is the one that is going to be the only one, the only one
• 1:23:29
  that really matters. Now with Bitcoin is something
• 1:23:33
  that I actually posted on X many times, but again, I should make
• 1:23:37
  it like a slogan. I don't know how to make it even
• 1:23:39
  more more relevant. Is the only network where the
• 1:23:46
  value of a network it's in being the network itself?
• 1:23:51
  What do I mean with that? Imagine a cell, right?
• 1:23:53
  A cell made a sacrifice. It say I'm going to give up my
• 1:23:57
  individuality to be part of this network.
• 1:24:00
  That is the body. Because the body, right, of an
• 1:24:03
  Organism is like a network. There are connections between
• 1:24:07
  the different cells. There are exchange of food,
• 1:24:10
  information, all kinds of things.
• 1:24:12
  It's like a network. It can be studied as a network.
• 1:24:14
  Scientists do that all the time. But you know, can a cell leave
• 1:24:18
  the network? If a cell leaves the network, it
• 1:24:21
  does. It cannot survive by itself.
• 1:24:24
  OK, so with Bitcoin isn't a little bit like that.
• 1:24:27
  Of course you can leave, right? You can leave.
• 1:24:29
  You can sell all your Bitcoin, you can forget.
• 1:24:31
  But in general, you will lose a lot by leaving the network.
• 1:24:35
  That doesn't happen with things like Facebook.
• 1:24:38
  You can jump ship with Facebook, you can decide, oh look, I like
• 1:24:43
  X much better if there is more activity is anonymous, whatever,
• 1:24:47
  and you can jump ship. Now you lose something because
• 1:24:50
  you lose some of the connection that you develop there instead
• 1:24:53
  of. So it's not an easy decision,
• 1:24:55
  but you can do or you can change cell phone carrier or whatever.
• 1:24:59
  With Bitcoin is much more difficult because your value is
• 1:25:03
  in the network itself. And so it's a very special
• 1:25:07
  characteristic of it makes it almost like an Organism once you
• 1:25:10
  decide to be part of this phenomenon.
• 1:25:12
  We work together, we interact together, we benefit from being
• 1:25:17
  a network because that is one of the things that we learn from
• 1:25:20
  this theory that more of us better.
• 1:25:22
  It is it's also about sharing in a way is we do this together and
• 1:25:28
  you get the value in the network.
• 1:25:30
  So it's very difficult to jump shares cheap and say I'm going
• 1:25:33
  to Ethereum, I'm going to do everything.
• 1:25:35
  So because of this effect, this network effect Beacon is the
• 1:25:41
  only one really. You know, there is no second
• 1:25:43
  best. There is no second best.
• 1:25:46
  There is no second best. Anyways, gentlemen, we are
• 1:25:48
  getting to the top of the hour. This has been an.
• 1:25:50
  Incredible podcast. I have one more thing Nico on,
• 1:25:53
  on the network stuff. Absolutely.
• 1:25:56
  I definitely agree with the IT is a proto network.
• 1:26:00
  Right now there is a network that you can you can go to any
• 1:26:03
  country and exchange your Bitcoin for the local currency.
• 1:26:06
  That's doable now, but we're still early, right?
• 1:26:10
  We're still in the year 15 of Bitcoin, right?
• 1:26:12
  I do fully expect that in the next 15 years, right?
• 1:26:17
  We're going to have Bitcoin be much more of a payment network
• 1:26:20
  and we're going to have much more apps built on Bitcoin.
• 1:26:22
  And we're going to be able to trade Bitcoin for perhaps stable
• 1:26:25
  coins or central bank digital currencies or I don't know what,
• 1:26:28
  right? But there's going to be more of
• 1:26:31
  an ecosystem that builds around Bitcoin.
• 1:26:33
  There's going to be many, many more people using Bitcoin.
• 1:26:37
  So it's going to be much more like a social network.
• 1:26:41
  It will be a much more like, as Giovanni said, the cell network.
• 1:26:45
  And really you will not be able to live without Bitcoin.
• 1:26:48
  So I think we're just in this very, we're still very early
• 1:26:51
  days and but we are seeing the beginning of a new financial
• 1:26:57
  network and the value in the is, it is in the network, it's in
• 1:27:03
  how, what are the network effects here?
• 1:27:06
  And so I think by buying Bitcoin, you're betting that
• 1:27:10
  this network is going to be built around Bitcoin and not
• 1:27:15
  around any other cryptocurrency or any, any other solution.
• 1:27:22
  So anyways, I just wanted to also just say, Giovanni, thanks
• 1:27:26
  for the everything you've done. Yeah, I think you've really
• 1:27:30
  added and. Thank you to to recognize, I
• 1:27:32
  want to say a very quick story of the connection between me and
• 1:27:36
  because people maybe like this story when I saw Fred, because
• 1:27:40
  he was becoming a sensation, like you say, immediately like
• 1:27:43
  him. I say, wow, you know, this is my
• 1:27:44
  guy. I love him.
• 1:27:45
  You know, he's a Matt Stanford PhD.
• 1:27:48
  He will understand the power law.
• 1:27:50
  I made this bet, right? And so I was posting like a
• 1:27:53
  little, you know, every day I would say, hey, Fred, look at
• 1:27:56
  me, look at me, look at my power law.
• 1:27:57
  Look at the power law and he ignored it because you know, he
• 1:28:00
  was busy like what happened? You don't look at every single
• 1:28:03
  post. And then one day I saw him
• 1:28:05
  reposting and he said Bitcoin is in unstoppable power law train
• 1:28:11
  and they said you see I was right, right.
• 1:28:13
  Anybody with a minimum of understanding of math and
• 1:28:17
  physics looks at the swing and recognize it and you.
• 1:28:20
  Will all come. To that conclusion, eventually I
• 1:28:22
  feel like, you know, we're all going to get to that same
• 1:28:25
  conclusion on our own terms, whatever, but we will all find
• 1:28:30
  the same place, I think. Giovanni is Fred's social media
• 1:28:34
  presence a power law trajectory upwards.
• 1:28:38
  It's my power, my, my social media is is is unfortunately,
• 1:28:42
  unfortunately bigger than Bitcoin price, right,
• 1:28:45
  Unfortunately. It's it's probably one of a few
• 1:28:48
  good exponentials with that we have.
• 1:28:50
  You know it's good. $1,000,000 million dollar million dollar
• 1:28:54
  Bitcoin or million followers for Fred first, I don't know let us
• 1:28:57
  know down in the comments anyways gentlemen I want to
• 1:29:00
  thank you Fred. Why don't you tell everybody
• 1:29:02
  where they can find you on the interwebs, YouTube, Twitter, all
• 1:29:05
  that just. You can go to dot dot Kruger on
• 1:29:09
  Twitter or or from there you can also have a website with a bunch
• 1:29:14
  of links and stuff, including some of Giovanni's stuff and
• 1:29:18
  other interviews that that have been done on the power law and
• 1:29:21
  other topics. So it's on fredkrueger.org, but
• 1:29:24
  you'll just find me on the Twitter.
• 1:29:26
  Awesome. So I'll drop that in the chat.
• 1:29:27
  And then Giovanni, same question to you.
• 1:29:29
  Where can people find you on the interwebs?
• 1:29:31
  A lot of people were asking for your models.
• 1:29:33
  I know that you have a dedicated website for that.
• 1:29:36
  So the best place because then you can find out a link to my ex
• 1:29:41
  and everything. We have a YouTube channel, but
• 1:29:43
  please go and also subscribe because my son is doing a lot of
• 1:29:46
  work in making these beautiful videos with high end videos with
• 1:29:51
  animations, all kind of things to discuss these concepts.
• 1:29:55
  But the website is called beat like bit right Poseidon, like
• 1:30:00
  the god.com. So visit Vector side because
• 1:30:03
  it's going to be kind of a hub for everything related to the
• 1:30:08
  power law. There are there is a place where
• 1:30:10
  you can find indicators because I developed trading view
• 1:30:12
  indicators. We have a community of hundreds
• 1:30:16
  of people that where we discussed the power law that you
• 1:30:19
  can join through Patreon if you like.
• 1:30:21
  Go under indicators and you will find the link.
• 1:30:24
  We have videos where we explain I'm going to create a class of
• 1:30:28
  completely free class for people to learn all these concepts step
• 1:30:32
  by step and you will find it there.
• 1:30:34
  We have free charts. I have all my articles there.
• 1:30:38
  So that is going to be the hub. So please visit, subscribe to
• 1:30:42
  the newsletter. The newsletter is free.
• 1:30:44
  I'm trying to write an article every two weeks about different
• 1:30:47
  topic. Recently I've wrote about
• 1:30:49
  liquidity, global liquidity and how that relates to the power
• 1:30:53
  law. So please sign up for the
• 1:30:55
  newsletter, be part of this movement and join us.
• 1:31:00
  Awesome. So guys, I put it in the chat,
• 1:31:02
  people are asking if you guys are going to Nashville Bitcoin
• 1:31:05
  2024 conference. Yes, I am there.
• 1:31:08
  Giovanni and Fred. A pizza together or.
• 1:31:11
  Something and simply Bitcoin is going to be there in the entire
• 1:31:15
  crew. So happy looking forward to
• 1:31:18
  meeting you guys in person. I also put both Fred and
• 1:31:21
  Giovanni's website in the video description.
• 1:31:23
  Opti's going to put it in the podcast description and they're
• 1:31:26
  both in the chat. So if you guys are watching it
• 1:31:28
  live, you should always catch a show live.
• 1:31:30
  You can see it in the live chat. So Fred and Giovanni, thank you
• 1:31:33
  so much for joining us today. Appreciate.
• 1:31:34
  It my pleasure. It was very cool.
• 1:31:36
  Thank you so much to have done this.
• 1:31:37
  Thank you, Fred. Awesome guys.
• 1:31:40
  Well, I hope you guys enjoyed another episode of Simply
• 1:31:42
  Bitcoin IRO. If you guys enjoyed the show,
• 1:31:43
  you know what to do. Smash the like button.
• 1:31:44
  Consider subscribing if you feel like we provided you value.
• 1:31:47
  We'll be back tomorrow for the live show Simply Bitcoin Live at
• 1:31:50
  12:15 PM Eastern Standard Time. So until then, sleep, you know,
• 1:31:54
  stack some Bitcoin. It's probably a good idea after
• 1:31:57
  today's episode and we'll see you tomorrow.
• 1:31:59
  Peace out, everybody. Episode was brought to you by
• 1:32:03
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