Episode Details

In August of 2025, the team reviewed various valuation models and their application to the new asset Bitcoin. Today the team looks at a different way to think about Bitcoin valuation through the lens of several different valuation models to identify a necessary transition from “pure” theoretical models (physics and code) to “hybrid” macroeconomic frameworks (institutional liquidity and geopolitical friction). The team presents a clash between deterministic mathematical laws and the chaotic reality of the 2026 financial landscape.

Here is a summary of Bitcoin value analyzed through the six primary valuation models presented in the podcast.

1. The Physics Lens: The Power Law & Scale Invariance

Core Premise: Bitcoin is not a financial equity but a digital organism or “city.” Its value grows according to deterministic, scale-invariant laws found in nature and urban planning, specifically scaling super-linearly with time.

* The Mechanism: The model relies on a feedback loop: Price increases ===> Mining profitability rises ===> Hashrate increases ===> Security strengthens ===> Value is locked in.

* The Metric: It posits a log-log linear relationship where Price is a function of Time raised to the power of roughly 5.8.

* The 2026 Stress Test: In early 2026, Bitcoin experienced a “drift” where price stagnated near $70,000, falling into the lower 15% of the Power Law corridor.

* Critique & Resolution: Critics argue regressing price against time creates “spurious regression” because time is not a causal economic factor. The resolution proposed is substituting calendar time with “Block Height” (endogenous time), which links valuation directly to thermodynamic work rather than the mere passage of days.

2. The Biological Lens: The S-Curve & Network Effects

Core Premise: Bitcoin is a communication technology diffusing through society. Unlike the Power Law’s unbounded growth, the S-Curve dictates that growth must eventually slow and plateau due to “finite wealth” and market saturation.

* The Mechanism: Value is derived from Metcalfe’s Law, where network value is proportional to the square of connected users.

* The 2026 Shift: Fidelity’s Jurrien Timmer argues that by 2026, Bitcoin transitioned from the steep “Early Adopter” phase to the flatter “Early Majority” phase. The “bending of the curve” implies diminishing returns, where supply halvings matter less than the sheer volume of capital required to move a trillion-dollar asset.

* Constraint: The model introduces a “hard ceiling” defined by Global M2 money supply. Bitcoin cannot exceed the total addressable market of the money it seeks to replace.

3. The Supply-Side Lens: Scarcity & Stock-to-Flow (S2F)

Core Premise: Value is driven by “unforgeable costliness” and absolute scarcity. The S2F model valued Bitcoin based on the ratio of existing supply (Stock) to new issuance (Flow).

* The Breakdown: While S2F successfully modeled early price history, it failed catastrophically in the 2024–2026 cycle. The model predicted prices exceeding $500,000, ignoring that scarcity alone does not generate value without demand.

* Econometric Failure: Thorough analysis revealed the model suffered from “spurious correlation”—it lacked cointegration, meaning the relationship between scarcity and price was a statistical illusion caused by both variables trending up simultaneously.

* The Thermodynamic Floor: A sub-component of this lens is the Cost of Production model, which argues miners provide a “hard price floor” at their breakeven cost ($77k–$90k in 2