How is Bitcoin priced? The pros on-chain are using these models.

How is the price of Bitcoin calculated?

Investing in the crypto space now, just looking at K-line charts is already outdated. Professional institutions and large on-chain holders are using various mathematical models to predict the price trends of BTC. Today, let's delve into the logic behind these models.

The Three Hottest Prediction Models

Power Law Model

This is one of the most accurate models for predicting BTC, with an accuracy of R² > 0.95, which means the fitting of historical data is particularly high. The core logic is: the increase in BTC is not random, but follows a predictable curve, influenced by both the growth of the number of people in the crypto space and the market cycle. In simple terms: more and more people buy coins → demand increases → price rises.

Quantile Regression Analysis

This method is quite sophisticated; it doesn't simply find an average curve, but rather divides historical price data into multiple quantile segments, allowing you to clearly see the price range in which BTC may oscillate under different market conditions. It is particularly suitable for risk management as it can inform you where “extreme market conditions” might rise to or fall to.

CAGR (Compound Annual Growth Rate)

The historical CAGR of BTC is 42.5%, a number that outshines gold and the Nasdaq index. However, industry predictions suggest that by 2030 this growth rate will drop to around 30% due to the increase in market size, which naturally slows down growth—just like a startup that finds it harder to double in size after reaching a certain scale.

How much did institutions push down the price?

In recent years, the surge in BTC has been driven significantly by institutional entry:

• The company's treasury is holding BTC: Giants like Tesla and MicroStrategy are treating BTC as an anti-inflation asset, placing it into their balance sheets, with hundreds of billions of dollars in real value.
• Daily net inflow of ETF exceeds 1.2 billion USD: After the approval of the Bitcoin spot ETF, both institutions and retail investors find it as easy to buy coins as buying stocks, which directly boosts the legitimacy and price of BTC.

Where are the opportunities in emerging markets?

Cryptocurrencies are not just speculative assets; they also solve real problems in some countries:

• Cross-border remittance arrives in seconds: Coins like XRP are specifically optimized for cross-border payments, reducing transfer times from days to seconds, with fees as low as a few cents, which is significant for countries like the Philippines and India that rely on overseas remittances.
• Hedge against high inflation: People in high-inflation countries like Venezuela and Argentina use BTC and stablecoins to protect their assets, which is much more reliable than saving in local currency.

How do AI and machine learning predict coin prices?

The most advanced approach now is to use LSTM neural networks to analyze social media data from platforms like Twitter/Discord, assess market sentiment, and then combine it with on-chain data to predict the next trend. This method adds an additional dimension to traditional technical analysis: popularity and FOMO sentiment.

But these models also have pitfalls

Never be superstitious about these models; they have many issues as well.

• Over-reliance on historical data: Assuming the past represents the future, but the cryptocurrency market changes too quickly, past patterns may suddenly become irrelevant.
• Reality Always Loves Black Swans: Models can never predict sudden policy changes, security incidents, or macro shocks.
• BTC is too volatile: Even the most complex models often fail in the face of the crazy fluctuations in the coin market.

Conclusion

These models are useful, but they are not a golden key. The future of Bitcoin depends on factors such as adoption rate, regulatory attitude, and technological innovation; no single model can capture the whole picture. The smartest approach is to combine multiple models + your own judgment + risk management, and don't go all in on any one prediction.

Disclaimer: The above content is for reference only and does not constitute investment advice. The risks of investing in crypto assets are high and volatile, please enter with caution.