Using Metcalfe’s law, MIT analyzed that the value of bitcoin is currently significantly overvalued and the market reflects the 2014 value. Following the law, the predictability of a near-collapse was possible and noticeable.
Metcalfe’s Law: To find the value of Bitcoin, how much is it worth?
By analyzing , an attempt was made to determine the value of bitcoin using Metcalfe’s law. When they try to decide how to value a money, people have different opinions. Some say the currency is worth as much as it is willing to pay for it, while others would argue that its value lies in high production costs. And that’s exactly why bitcoin is experiencing extraordinary ratings.
In December 2017, Bitcoin’s share price was at its highest level, $ 20,000, while the size of the total cryptocurrency market was an exemplary $ 830 billion. In a few days, however, the market collapsed and fell to $ 280 billion, a huge drop.
So the question arises, what exactly is bitcoin worth? MIT analysts point out that the value of a cryptocurrency actually lies in the network of people who use it. Moreover, if a bitcoin is valued at such a high price, it is difficult to understand and comprehend the telltale signs of a market collapse that will surely come.
Following Metcalfe’s law, which states that “the value of a network is proportional to the square of the number of users”.
He claims that based on the number of users, it is quite clear and easy to find the value of bitcoin. The idea of the original law assumes that all nodes can be interconnected. In addition, the law reflects that the value of bitcoin has increased along with the number of users.
Read more: As Bitcoin falls, the stock market faces even the worst fall
Significant bitcoin crashes
The law also shows whether bitcoin is overvalued. Four occasions were mentioned separately when bitcoin overestimated and then crashed.
The first major accident occurred in 2011 with Mt. Gox fiasco. The Tokyo-based stock exchange was hacked, resulting in about 88 percent drop in the price of cryptocurrencies in three months.
The next was the 2012 crash, which was due to the discovery of a Bitcoin Ponzi scheme. Then the 2014 crash, Mt. Gox, collapsed due to high trading volume, resulting in a 50 percent drop in bitcoin prices in just two days.
Now, the recent collapse in 2017 was triggered by a number of factors, most notably the South Korean government’s action against cryptographic exchanges.
The analysis follows an approach where the market is growing at an extremely exponential rate. This kind of growth is unsustainable and only lasts for a short time. This collapse is inevitable for the market.
Moreover, this collapse is predictable because unsustainable growth only leads to high volatility, which means increased instability, which means that even a small event can cause a collapse.
The analysis also indicates that the market was in a critical state at the time of the collapses, and if these events had not triggered the collapse, all other events would certainly have occurred. Moreover, past data can be used to detect market collapse and impending collapses.
Bitcoin is still extremely overvalued, you may see another decline
Like Metcalfe’s law , even after the collapse in 2017, the value of bitcoin is significantly overvalued, illustrating that:
“Our Metcalfe-based analysis indicates the current level of support for the bitcoin market in the range of $ 22-44 billion, which is at least four times lower than the current level.”
This means that there is no stable soil yet, as “the current market is similar to the market in early 2014, followed by a one-year sideways and downward movement”.
Overall, therefore, it sends a clear message to beware of upcoming events for all associates in the bitcoin market, from investors, speculators to miners and everyone else, as further price reductions are an opportunity.
Do you think the value of bitcoin is overvalued under Metcalfe’s law, and is there still a rocky road ahead of bitcoin? Let me share your thoughts below!