Get started

Metcalfe

Has Metcalfe's Law Stopped Working for Bitcoin?Metcalfe's Law has been successfully used to value a variety of network effect technologies and businesses, including Facebook and Tencent. Applying Metcalfe's Law to Bitcoin , using "Daily Active Addresses" (DAA) as the "n" value, yields interesting results. Historically, Bitcoin has tracked the Metcalfe Law Fair Price reasonably well. A number of studies have been performed over recent years which validate this and have used various derivations of Metcalfe’s Law. Note: this indicator sticks to the original Metcalf’s Law. Prior to 2018, every time Bitcoin was above the Metcalfe’s Law fair price (calculated using a default “A” of 0.5 here), a bubble had formed, and price quickly reverted back down to the mean. Nonetheless, since February 2018, Metcalfe's Law Fair Price has remained below the actual Bitcoin price, suggesting Bitcoin is currently overvalued. There may be a few reasons for this: 1. Possibility A: Bitcoin may still be extremely overvalued. Since the December 2017 peak, Bitcoin has only reverted to the Metcalfe’s Law Fair Price briefly during the December 2018 bottom. If this case is true, there could be further to fall unless DAA numbers pick up to fill the gap. 2. Possibility B: The introduction of side-chains, private transactions and the Lightning Network may have fundamentally altered the effectiveness of using DAA to value Bitcoin . As more daily transactions are completed off-chain, or on large platforms/exchanges which use fewer addresses, the relative number and growth of DAA may be misrepresented and artificially low. In this case, DAA as it is reported today is no longer useful in assessing the fair value of Bitcoin with Metcalfe’s Law and this Indicator is effectively useless. 3. Possibility C: Neither of the above are true. We are just in an anomalous period in which price and Metcalfe’s Law Fair Price have deviated from the mean for an extended period (and will meet again in the future, potentially at a higher price). 4. Possibility D: Metcalfe’s Law doesn’t really work for Bitcoin . I am inclined to believe Possibilities “C” and “D” are unlikely. Given the way Bitcoin infrastructure is being developed and used in 2019, Possibility “B” seems the most likely, as this case is supported by the fact that a number of other metrics indicate that Bitcoin is currently on the lower side of “fair value” (including Dynamic Range NVT Signal). If Possibility “B” is false, or the impact of private network address usage is negligible, the Bitcoin network may not in a healthy state, with DAA values basically flat for the last 3 years. Regardless, Possibility “A” remains a candidate. Only time will tell. It will be interesting to check back on this indicator in 12-24 months time. Hopefully this indicator has been proven redundant by then.
BNC:BLX
by capriole_charles
3
Implications of this breakout for longterm BTC trendSo yes, BTC is apparently bullisher than I thought, at least short-term, because longterm I'm always a BTC uber bull :) But short-term, I had several reasons to think that a weekly capitulation bar was very likely: 1. Too much bullishness and optimism (contrarian indicator) 2. Number of daily transactions still below ATH (although now finally approaching ATH level), therefore metcalfe price not high enough 3. Crypto fear and greed index at or above 60 (alternative.me) 4. Weekly and 3d stoch RSI on overbought since ages 5. Drying up volume after a strong impulse move down in an ascending triangle 6. Bearmarkets in BTC like to end with a strong capitulation weekly bar on large volume And most importantly: 7. Cycles getting longer, meaning that the low we had in 2015 in January, would come a few months later, around April-May. But apparently, BTC does something else. That's why one has to love BTC. No matter how long you're in the market, BTC always makes you rethink your assumptions. That's why I was thinking, what implications would it have on the longterm BTC chart, if we'd enter the bullmarket now, the chances of which have increased a lot, especially if the weekly candle closes above 4600. I've drawn two scenarios: One where BTC slows down, every cycle until now was 574 days longer than the previous one. Of course, we don't have enough data points yet, but if we are to extrapolate this, we'd get the next ATH in July 2023 at around 200k. But it seems to me that this theory might be wrong, given that BTC wants to continue the bullmarket prematurely, thus, as fast as the last time, with no signs of slowing down. This would mean that the cycle duration would from now on stay more or less the same: 4 years, strictly governed by the halvings. In anticipation of the halvings, the price already starts to rise at least one year before the halvings, as it seems. Therefore we would get the next ATH at the end of 2021 already, but then not quite as high, "only" around 100k. So, as BTC appears faster and bullisher than I thought, what do you think, will the cycles get longer or not? Both could work out, although the faster breakout here would favor a bit the 2021 ATH version. But then again, the logic dictates that as bigger as something gets, the more "inertia" it should have. Guess we'll need new data points for 2019 :) Now, when is a good time to enter this market? I personally never enter a FOMO, especially not when all indicators are overbought. If indeed the weekly candles continue green and get above the 5k range, it will be good to enter when weekly stoch RSI gets oversold again, after a few strong dumpds, i.e. from 6500 to the 4000 range, provided the logarithmic resistance now acts as strong support. I've written a lot now, but this move here is fascinating, and therefore needs thinking and re-adjustments for the longterm BTC trend might be necessary. Neutral because I wanna see the weekly candle close first to be sure.
BNC:BLX
by SebastianofMoon
17
Weak bounce increases the likelihood for this bearish scenarioWell, this bounce from 3200 is the most pitiful excuse for a bounce I have seen in a long time. This shows that the support at 3200, which should have lead to a very strong reaction, a rally to upper 5000s, is quite weak. I think we'll go below the MA200 in the near future. Maybe the structure will be different from the 2011 fractal, in that BTC just doesn't really do large bounces and dumps any more, just a slow and long decline towards 1200, the high of 2013. This means that the bearmarket will also drag on longer than expected, and only in the second half of 2020 would we rise again thanks to: 1. The halving effect 2. The stock market bearmarket probably over and new bullrun in stock indices (BTC correlated with stocks) So, let's see if BTC bounces soon, then this might still be averted, but the likelihood fot this increases more and more. The positive of this? An entry at 1200 would be an insane opprtunity, since the ATH for next rally, even though it would occur later, say 2023 plusminus, would yield nice gains. Also keep this chart here in mind: www.blockchain.com Historically, when transactions go above old ATH, only then the beartrend stops, and BTC turns bullish. Never before. And it looks as if it will take quite some time until we reach old transaction ATH. So, I will be prepared for that scenario.
BNC:BLXShort
by SebastianofMoon
24
The most important chart in Bitcoin: Metcalfe's lawSorry, I didn't know how to do it here on tradingview. My very smart girlfriend Jixuan Wang used the program R to import and plot the real bitcoin price versus the Metcalfe price: ibb.co Orange is real price from exchanges, green is Metcalfe price, which can be calculated from the number of the daily transactions squared: P = C* T². P=price C= a constant, chosen such that the fit is good T = number of daily transactions If orange above green: BTC IS OVERPRICED If green above orange: BTC IS UNDERPRICED We are currently overpriced, same as in 2014/2015. This is one of the main reasons why I believe that this bearmarket will still go on for 1 more year.
BITFINEX:BTCUSD
by SebastianofMoon
6
$BTC - Fundamental analysis of its value (and why it will go up)Fractal Markets Theory: www.investopedia.com "The role of information is crucial in making sound decisions with any sort of investment strategy. Within the framework of FMH, the impact of information availability can lead to changes in time horizons and liquidity. During times of stability, FMH states all investors share the same information. How information is perceived results in the individual investment decisions: a day trader may perceive price fluctuations and decide to sell, while a pension fund manager will place less value on price movements. " Metcalfe's Law: en.wikipedia.org "Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2)." Digital blockchain networks appear to be following Metcalfe’s Law: www.sciencedirect.com "Finally, the potential for identifying value bubbles that can be spotted as deviations in value from the model was discussed and illustrated using the data from one of the networks. Those value bubbles show up where repeated extremely high value increases are not accompanied by any commensurate increase in the number of participating users, or any other development that could give rise to the higher value." Fundamental analysis: Bitcoin holds many of the same intrinsic values as the internet, therefore should also follow the same theories that have been applied to the internet and other telecommunication networks. The growth of bitcoin's value from sub $10,000USD to $20,000 was artificial, leading to a lack of strong support when it faced media news/speculations used to destabilize it; news that bitcoin investors themselves spread. Following Metcalfe's Law, we can hypothesize that the run up to $20,000 was a bubble and we are now seeing bitcoin return to its original support, at a higher fiat value, due to an increase in users. Following the volume osc., we can see that historically price drops as it increases; this seems to be from panic selling causing oscillation to rise. As the volume osc. value decreases, bitcoin's dollar value naturally rises. I believe this is because of its natural growth as a coin, removing all the hype and FUD. The fundamental reasoning for its value diving in recent times is due to news being spread to manipulate the market value. Korea's government, who said they would ban it, reversed positions more than a few times, apologized for being so confusing, and even had inside trading with the officials who released negative statements on it. Now they are stating they do have a use for it. China said they would ban bitcoin in mid-late 2017 and Antshares/$NEO took a nose dive. NEO is a centralized (for now) cryptocurrency that ties blockchain to ID; it utilizes $GAS to fund ICOs and was chosen by China because of NEO's vetting process for ICOs. They wanted to cut down on scams and track their citizens' use. Referencing MEX_Exchange's fundamental reasoning: ICOs are funded with milliions of dollars in their pre/private stage from private investors and VCs; most credit cards have limits in the thousands. Limiting credit cards can shake market sentimentality, but only if cryptocurrency investors believe it to cause harm to its value. A lot of bearish predictions by well respected entities definitely is a fundamental reason for $BTC to lower in the short term.
BITFINEX:BTCUSDLong
by NeoButane
4
BTC starting to near over-exponential growth phase : buckle up !Now the real insane phase of this current growth cycle is starting. I do not like the term bubble, since btc is not a bubble. It is a network, and a network can be priced. According to metcalfes law, we are actually not very overpriced. The value of a network is derived from the number of users and how often it is used. Bitcoin has a current metcalfe price of around 6000$. So not too bubbly. What bitcoin likes to do, is be borin 90% of the time, and then experience insane growth spurts for a short amount of time. We are experiencing now one of these growth spurts on the long way to mass adoption. The way there is described by a log-S curve. You can for example see the log-S beautifully with the number of internet users from 1995 to now. Or with the number of smartphones. All log-S curves. BTC is a network, a technology. And that's what many chartists don't get, and then they are astounded by these prices and talk about a bubble. Yes, there will be a sharp correction after this growth spurt. For example from 20K to 8K. But then afterwards the next cycle starts. And so on and so forth until around the year 2025-2030 btc has become mainstream and a price has been reached that will not rise much more afterwards. Yes, it will fluctuate, but the volatility will be so much lower than nowadays. A 1% gain in that era will be a major rally, lol ! Looking at the chart, we see that now we are entering the overbought area in the weekly Stoch RSI. This is when the last phase starts, with insane price growth, over-exponential price growth. This "acceleration point" can be beatifully seen in the prvevious growth phases of 2013. After that point, we start seeing very big weekly candles. We now had the first larger weekly candle, and therefore I think that the last phase is starting now, which might last a few weeks: 2-5 weeks. Fun times ahead. Enjoy the coming weeks and see you on the moon :)
BITSTAMP:BTCUSDLong
by SebastianofMoon
16