Modeling the Long Game - How can the LGC in BTC/ USD Plateau while USD Hyper-Inflates?

Dear Readers,

Square-The-Circle-Cover – Storytelling for our Times

Most of us are familiar with the memes for a stupendous BTC price, whether decked out in all the splendour of scientific garb, such as s2f was, or whether just a blatant and conscious meme, such as the recent call for 1 million BTC in 90 days. As any marketing analyst would observe, memes have functioned well in the past for bringing in a lot of retail money into a very speculative market. But what if this market is in the process of maturing, where a multi-trillion market cap in the near future will have to involve the entry of more conservative and ‘institutional’ money? What follows is a more serious analysis of price projection for the sober-minded investor, not to mention that more conservative money sitting on the side-lines.

It has often been a point of criticism against the LGC model that it has price - in USD terms - stabilizing, or plateauing, at sub 1 million dollars. To many in the Crytpo space, who are influenced by the hyper-inflation of USD narrative, where USD is thought to become increasingly devalued due to heavy money-printing, a sub 1 million USD price is thought way too conservative. Accordingly, they struggle to see how the LGC could actually develop. And yet develop it has since 2018 when this model was first put forward.


This article will attempt to square this circle, to solve this conundrum that seems to lie at the heart of the LGC, a model that has been mapping out price development in BTC/ USD for a good few years now. How can the LGC plateau at sub 1 million dollars? It will first look to examine what exactly we mean by hyper-inflation, and then look at how a more nuanced view of this might apply to the LGC, as priced in USD.

It will be my aim to show:

1 - That ‘hyperinflation’ can be more than a meme

2 - That while BTC remains in the period still involving a rapid capitalization of the currency, one that reflects exponential price increases, the LGC as priced in USD will still effectively apply

3 - That the LGC as priced in USD will reach an inflection point, at a later date, where it no longer applies once the currency is near fully capitalized, and price movements become less exponential

4 - That the LGC, as priced in gold, will continue to apply

1. Hyperinflation - More than a Meme

Undoubtedly, the USD hyper-inflation functions as a popular discourse today, or we could say a meme. Of course, there are those that argue that markets are all about memes, driving buyers this way and that, and no doubt they are to a certain extent. But it is my aim here to offer a more sober analysis to the more pragmatic, and often contrarian, trader/ investor.

Accordingly, I want to examine this hyper-inflation narrative a little more closely, and ask what exactly it might mean. Yes, the reserve currency of the US dollar has been facing a constant dilution in purchasing power over the years, but no - it is has not faced a Weimar-like hyper-inflation as has been predicted by many Cassandras over the years.

The yard-stick to measure this is of course gold. as we can see on the chart we have in the aggregate a constant depreciation of USD against gold over the years of something like 10% compounded. Not hyper-inflation, but also something quite significant, something that central bankers, macro-economists, and investors alike will have their eye on. Note that this chart is inverted to show USD’s depreciation against gold, as opposed to the apparent appreciation of gold.

Long term chart of gold/ USD, inverted to show depreciation of USD against gold
Zoomed in to show the annual rate of compounding depreciation

As we can see from the above charts, this kind of instability in the dollar has to be somewhat alarming for the keepers of the currency from the macro long-term perspective. I think it’s fair to say that this is a ‘hyper-inflation’ of sorts, and I interrogate that word as it is not of the garden variety that we are all so familiar with. As we’ve become increasingly aware over the years, USD, as a reserve currency, faces wider deflationary forces in the economy that serve to counter-balance the inflationary ones, colloquially known as ‘money printing’.

USD is a debt-based currency system unlike the literally paper-printed currency of Weimar. Yes, the printing and expansion of central bank balance sheets weighs on the currency, but the key words applicable here are an instability and incremental erosion of the currency in contrast to its sudden and explosive hyper-inflation.

Bringing this back to the price development of Bitcoin along the lines of an LGC, a logarithmic growth curve that plateaus at the top, we can see the problematic nature of this - how can the price of BTC in USD plateau when USD, the pricing medium, is itself unstable as outlined above?

2. The LGC, in USD terms, is Applicable as long as Bitcoin Continues its Relatively Rapid Process of Capitalization.

As described previously, any meaningful hyper-inflation of the USD is only noticeable - as experienced in actual real terms in contrast to theoretical ones - on the long term multi-decade chart, and as mapped against gold. This implies that USD is a relatively stable coin in the shorter term - it has not imploded as hyper-inflationists of the Weimar variety have been predicting for quite some time.

Rather, as a debt-based currency, and the world’s reserve currency at that, it has held up relatively well due to countering deflationary forces in the economy. This has led to instability, volatility, and longer-term depreciation against gold, our age-old symbolical repository of the very idea of money. Given the relative stability of USD, it is able to measure the logarithmic growth curve, the LGC, of Bitcoin as long as that growth is still seen in radical and exponential terms.

At some point though, as BTC becomes more fully capitalized, reaching something equivalent to gold’s market cap, being itself digital gold, USD will lose its capacity to measure this curve. For this is because an LGC must at some point plateau, where prices lose their exponential increases and instead come to eventually stabilize on the longer-term chart. And yet, as we have seen, in the longer-term, USD is steadily depreciating against gold. This must also have implications for BTC, as priced in the dollar, as follows.

3. The LGC, in USD Terms, Reaches an Inflection Point when Near Capitalized

An inflection point is the point of a curve at which a change in the direction of curvature occurs. An inflection point in the LGC as priced in USD must occur when we see a shift from exponential rises in price, that come with a process of rapid capitalization, to a more stabilized price, where price increases would be more normative - as say, for example, the increase of gold against USD.

This inflection point would come when BTC is near capitalized, and where the curvature of the LGC, which measures the rate of Bitcoin’s appreciation against USD, would be similar to the long-term rate of gold’s appreciation against USD - 10% compounded per annum. The chart that follows is the mapping of this inflection point, where the LGC in USD would be superseded due to USD’s macro depreciation.

The inflection point of the LGC in USD terms

Given this chart, and the prediction of an eventual inflection point of the LGC in USD terms, we can see that for all practical purposes the LGC, as priced in USD, is fine to continue measuring and predicting price development for a good decade or two going forward. The most significant point here is that yes, Bitcoin will most likely surpass one million dollars, and yet that will also take some time.

Of course, the reader might here be left asking - if the LGC is ultimately defunct against USD, then why bother using it? To which I’d say there are very good reasons to keep using it:

  • The USD version of the LGC has mapped and predicted price direction for quite some time now, since 2018.
  • It will most likely to continue to map and predict price direction for quite some time going forward
  • The LGC will I believe continue to apply well into the future against gold, even as it is eclipsed against USD, which brings me to the final point.

4. The LGC of BTC as Priced in Gold Will Continue to be Applicable

The real standard we have for monetary value and capital for all practical purposes is, and always has been, gold. Indeed, Bitcoin itself, as a form of digital scarcity, is often referred to as digital gold, and rightly so. Gold, which has been capitalized for millenia in the minds of men, is the bar against which monetary value is to be measured. In pricing Bitcoin in terms of gold, there is now no concern about the pricing medium itself eroding in monetary value, and accordingly, the LGC is projected to hold good for the longer-term as well as the shorter-term against BTC.

What we see in the following chart of Bitcoin as priced in gold is, in my opinion, the rapid capitalization, in the free money markets we find ourselves these days, of this nascent and alternative currency. As the currency is increasingly capitalized, the ‘cap’ increasingly tapers off, where that cap looks likely in the not-too-distant future to approach that of gold’s, as was calculated in the previous chart above - the inflection point of the LGC in USD terms.

Given the LGC model, the investor can expect to see something like a 22x return against gold over a period of a couple of decades or so… even as gold itself continues to appreciate against the current reserve currency of USD.

It’s been my aim to show here that as long as one keeps the notion of relative stability in mind, as a relatively stable currency, USD, measures an incredibly volatile asset, BTC, on the one hand; and on the other hand keeps a relative instability in mind, of a currency, USD, slowly depreciating against gold, then the LGC, even in USD, should continue to perform relatively well as a pricing model.

It would only be in the longer-term, that it would become problematic, due to its near capitalization, and less exponential moves, where the measuring function would have to be handed over to gold from USD.

When the price of a single bitcoin is then seen to supercede 1 million dollars, and when the LGC becomes redundant in USD, then the USD itself may be bordering on redundancy.

Until next time,

Stay, relatively, safe out there,

Dave the Wave.

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