As a reminder Metcalfe’s Law states the value of a network is proportional to the number of members squared.
In my opinion the reason for this divergence and disconnect was the due to the cataclysmic Mt.Gox Bitcoin exchange collapse in Mid 2014, which the price has still yet to recover from.
Based on this, it could be argued that now may be a good time to invest in Bitcoin as it appears to still be trading at a discount to its underlying net asset value or Metcalfe value.
In addition, shown on the chart above, the ratio of Metcalfe value compared to the recent price was recently sitting at 10-1. Based on this we can predict that for the current price of Bitcoin begin to come back into line with the Metcalfe value of the Network ,we could see prices move up to and around the $2500 – $5000 mark or around $40bn-$80bn.
Below is Willy Woo’s analysis on Bitcoin Metcalfe value…
“Bitcoin rose to an almost three-month high amid a surge in volume as the yuan extended a six-year low, bolstering Chinese demand for alternative assets”
“As the yuan enters a path of depreciation, investors will consider investing in assets that can preserve value and hedge risks,” said Zhu Jiawei, Beijing-based chief operating officer at Huobi, one of the largest Chinese bitcoin exchanges”
“Overnight bitcoin, which had traded in a stable range with little of its characteristic volatility in recent months, made its latest breakout, surging nearly 5% from a $440-level, to a fresh 2016 high of $480”
[Editors Note: For the strong correlation previously seen between the Metcalfe Value and the price of Bitcoin to normalise; the price of Bitcoin needs to be somewhere in the region of $5,000 – $8,000 per coin.
If this chart holds some validity in estimating the current value of Bitcoin, right now Bitcoin could be trading at a extreme discount to its Net Asset Value (NAV)]