The Power Law Divergence Indicator is an analytical tool based on the Power Law, which is used to model the relationship between time and Bitcoin price over long time frames. The basic idea is that Bitcoin's price grows over time according to a logarithmic pattern that can be tracked by a long-term trend line. This indicator uses the deviation of the actual price from the mathematically predicted price according to the Power Law, providing a more consistent perspective on the cryptocurrency's natural growth.
Comparing previous Bitcoin cycles with the current one, we find that Bitcoin's price has not yet reached bubble levels and that there is potential for further upward movement. The price is currently moving above the Power Law line, but it is far from the upper red zone. The divergence indicator is also at a moderately positive level, not reaching bubble levels. This indicates that the market is in a phase of natural growth or the beginning of a speculative period.
On the other hand, the price is showing greater discipline this cycle compared to its predecessor, as illogical price explosions have not been observed so far. The market appears more mature and may be more influenced by macro factors such as monetary policy and regulations. The price is expected to continue its gradual rise, but in the event of massive institutional inflows or positive regulatory decisions, the price could jump rapidly, pushing the index into the red.
In this scenario, it could be a good opportunity to take profits gradually.
Written by Arab Chain
