Thanks! I already suspected something like that, because experimenting with values I found out that, if we maintain the same formula, it seems not to be possible to create a curve which still is close enough to our observed price history, but returns significantly lower results for years far in the future. Particularly from 2050 on I get values of more than 10 millions which are in my opinion extremely optimistic.
We have 15 years price history. An estimation for 2050 would be more than 25 years into the future from now, which is not prudent.
If we assume the Lindy effect there is a non significant risk of Bitcoin not surviving the next 25 years. However due to the high trend growth in Bitcoins price the Kelly criterion would still suggest to invest 66% of your current and future life savings now and rebalancing out of Bitcoin after 5-10 years to keep the allocation at 66%.
Ultimativ there will be a Bitcoin price after full adoption (which could be 50% of the market cap of gold = 9*10^12 USD or 20% of the marketcap of real estate, stocks, art and bonds = 30-40*10^12 USD), which will then only increase with global money supply (e.g. 8% a year). However I'm quite uncertain what market cap Bitcoin should have. The question is not if the model breaks down but when.
Even if the model would break down and Bitcoin trend growth would be only 25% per year instead of the estimated 40%, Bitcoin would still be an excellent investment.
I estimated the slope of the curve again with current data. The slope decreases from 5.8394 to 5.823 with the full sample data suggesting a trend price of 71.5k EUR instead of 73k EUR. However, if we split our price data in half (before and after 14.11.2016) we only get a lower slope: e^(5.0743*ln(days)-32.942) suggesting a fair trend price of 59k EUR and lowering the trend price growth to 37%.
This formula based on the recent half of Bitcoin prices would not impact our Bitcoin allocation for holding much since the yield is still very high. However it would impact our decisions trying to trade the cycle. If we are too optimistic about the bitcoin price trend, we would miss to sell at the top and buy Bitcoin to early in the bear market.
- 2025-01-01: 55526.39 € - looks quite bearish, but it's possible for 2025 to be an euphoria phase so the real price can be much higher than that.
- 2026-01-01: 73064.35 € - could be close to the low of the next bear.
- 2030-01-01: 190316.34 € - feels already quite good.
- 2035-01-01: 500754.85 € - Gold flippening is close!
- 2040-01-01: 1110794.37 € - Looks already quite bullish, can we sustain that?
- 2050-01-01: 3942264.41 € - I think many would be happy with that result
- 2026-01-01: 73064.35 € - could be close to the low of the next bear.
- 2030-01-01: 190316.34 € - feels already quite good.
- 2035-01-01: 500754.85 € - Gold flippening is close!
- 2040-01-01: 1110794.37 € - Looks already quite bullish, can we sustain that?
- 2050-01-01: 3942264.41 € - I think many would be happy with that result
I would use the trend formula for price projections of 3-8 years. For longer projections I would which market of savings Bitcoin will capture. Also for long term projections you have to estimate a probability of Bitcoin failing and significantly underperforming stocks/gold/realestate.