Menu IconA one bitcoin price stack of three evenly spaced horizontal lines. This model is based on Metcalfe’s law, which says the value of a network is proportional to the square of the number of users on the network. Bitcoin has been trading at a level above the price projected by the model. He says his short-term valuation model, built on Metcalfe’s law, can explain the majority of bitcoin’s volatility.
He explained his reasoning on Business Insider’s cryptocurrency show, “The Bit. Metcalfe’s law says the value of a network is proportional to the square of the number of users on the network. For example, a fax machine is utterly useless if you are the only one who has one, but the value increases exponentially as other people get fax machines. This is also true for social networks — Facebook is valuable because so many others are on it. It’d be a boring place to surf alone.
If you double the number of users, you’re more than doubling the utility value,” Lee said. Lee says the same is true for bitcoin. Here’s the portion of “The Bit” that explains his thinking. You can watch the full interview with Lee here. Lee: In the short term, we think bitcoin has really followed very closely the idea of acting like a social network — meaning the more engagement there is, the greater the value rises. Sara Silverstein: And you’re using Metcalfe’s law.
He actually came up with a theorem based on George Gilder, which is the value of a network is the square of the number of users. The model has a relatively good fit through the middle of this year. Lee says the model provides “a method to suggest a short-term range for bitcoin. Given this premium, Lee is a little more cautious in the short term. Bitcoin’s longer-term technical trend remains positive,” he said, “but short-term upside appears limited, and the risk of a correction is growing. Get the latest Bitcoin price here. Bitcoin keeps coming back in the headlines.
With any Bitcoin price change making news and keeping investors guessing. In countries that accept it, you can buy groceries and clothes just as you would with the local currency. Bitcoin is divorced from governments and central banks. It’s organized through a network known as a blockchain, which is basically an online ledger that keeps a secure record of each transaction and bitcoin price all in one place.