The Allure of Bitcoin Riches
Bitcoin to the moon! Number go up. We're all excited about buying lambos and living the life of luxury simply by hodling our Bitcoin. After all, it's a scarce asset of only 21 million whole Bitcoins to ever exist compared to the infinite number of dollars or other currencies that central banks can print. It's decentralized, meaning no government can manipulate or control it. And Bitcoin has a historical CAGR of 40-60%. Clearly, all BTC hodlers are going to be millionaires, right? Except we are forgetting one thing, inflation.
When you account for expansion of the money supply, that is to say inflation, real gains of Bitcoin are not so significant. Instead, we will see much more modest gains than we have come to believe.
The Elephant in the Room: Money Supply Inflation vs. CPI
The Government tells us that inflation is chugging along at roughly 3% a year, with some exceptions like last year when it spiked to about 7%. The Consumer Price Index is what the Federal Reserve and the Government use to base their decisions when it comes to the economy. Of course, they frequently change the formula and exclude "outliers" when calculating the CPI. But the real inflation has been almost double what is reported when you look at the M2 money supply, which bounces between 5-10% annually. Let's say that the average growth of the money supply is about 7% for the sake of this discussion.
When we measure the value of the dollar against an increase in the money supply, we have a much better measure of inflation. We also have to keep in mind that this average 7% increase in the money supply compounds every year.
To illustrate, let's say you have $1000 stashed away somewhere. In ten years, that $1000 will buy you roughly what you can buy today with $508. The value of your money will be cut in half when you factor in the 7% growth in the money supply!
The Bitcoin Power Law Model
A Power Law model is a statistical method that uses regression to estimate the future trajectory of Bitcoin price data. When using statistical models, you will often hear people say that things revert to the mean. That mean is a mathematical line that shows you approximately where future data will land on a chart. The data might be a bit above or below the line, yet it will still follow the line. The data used is long term price data for Bitcoin to calculate the projections.
The Bitcoin Power Law model, projects that in ten years Bitcoin's "linear regression fit", that line we just discussed, will be roughly $1,880,000. In other words, we can expect Bitcoin price to be somewhere above or below $1,880,000 in ten years. According to the same power law model, the price of Bitcoin could go as high as $4,711,000 and as low as $667,000 in ten years. The model gives us a price range that we an expect.
As a caveat, Bitcoin price has tended to follow the power law model. But this is just an extrapolation, a statistical guess based on a quantified trend. Something could happen that is outside of the expected range, but we can generally expect that any spikes or crashes will revert to the mean unless something happens that completely changes the game. Also keep in mind that the Bitcoin Power Law chart is logarithmic.
When you account for inflation, then in ten years that $1,880,000 Bitcoin will only be worth about $940,000 in today's dollars, about half. The problem here is that we are measuring the value of Bitcoin against the value of the dollar, which itself changes in value.
EDIT: It turns out my calculations in the paragraph below are wrong. 
Based on this, we are only seeing a "modest" 10X gain on Bitcoin over ten years. That's roughly 1% per year in today's dollars. While this could be slightly disappointing, let's keep in mind that your $1000 in today's Bitcoin would have escaped inflation and is still a gain. And you will presumably buy more Bitcoin in the next ten years.
Practical Considerations
Something else we have not discussed is the impact of taxes. If you were to sell your Bitcoin in ten years after your 10X real, not nominal, gain, then your actual return will be even less than we have discussed.
Another practical consideration is that the Bitcoin Power Law model gives you a reasonable metric for deciding when to buy and when to stop buying. When the price of Bitcoin is above the linear regression line, you may want to hold off on buying. When the price of Bitcoin is below the linear regression line, it would be a good time to buy. Over the long term, it doesn't matter as the price of Bitcoin is expected to continue to rise above the resistance line. But you would amplify your gains the closer you buy to the support line. You would get greater value. In this way, you can use the volatility of BTC in your favor.
The Sobering Truth About HODLing
We have reason to be excited about the growth of Bitcoin and all that makes it a better form of money than fiat. But I hope I have provided you with enough knowledge to temper that excitement with the knowledge of the effect the money supply has on the real value of Bitcoin over the long term so that you have realistic expectations and can plan accordingly. Bitcoin is good, but not THAT good.
Bitcoin can definitely protect your purchasing power. And in this sense I agree with the people who are living the Bitcoin Standard. True wealth isn't just about the nominal number of dollars we can get, but about protecting our purchasing power. In this, Bitcoin is a powerful development for humanity, avoiding the hidden tax of inflation.
We should avoid the expectation that Bitcoin will give us life-altering gains simply by HODLing. The reality is that Bitcoin is a good tool that you can use to make life-altering decisions with the knowledge that your earnings are protected from the debasement that non-Bitcoiners experience. Borrowing an analogy from Michael Saylor, you don't have to see your ice cube melt away.
I invite you to do your own research. What I haven't touched on is opportunity cost, which is always present when financial matters are concerned. And, I only have an introductory understanding of statistics that gives me a very basic understanding of the Bitcoin Power Law model. Perhaps I am mistaken, except the BTC price data thus far has remained within bounds of the model. Also consider the impact of inflation over the long term when you are dreaming of the color of your lambo. And what I have also not addressed is the power of constantly growing your savings over time. A 10% return on $1000 is nice for a date with the Mrs. But 10% on $100,000 starts to become life-changing.
An Aside for Hive Bloggers
With all this in mind, for those of us blogging on Hive, we have at least two ways to outpace inflation. Some Hivers are able to earn about 10% on their stake through posting and curation. The Hive blockchain itself issues about 3% inflation, bringing our real return down to about 7%. HBD savings pays 15%, which outpaces inflation, giving a real return of about 8%. With compounding, there is an opportunity to actually grow some part of your wealth. Of course, we should temper that with the underperformance of HIVE over the years. Despite this, there is real opportunity to build wealth on Hive for those who understand how to do it. But clearly, even on Hive it's not enough to just hodl.