The Bitcoin Price can be compared to Metcalfe’s Law
Metcalfe’s law is being used to explain the incredible growth Bitcoin has in 2017. Increasing from around $1,000 to around $6,000 at the time of writing. But just how much can one Bitcoin rise to? It seems as though it is setting a new all time high just about every day. Speculators are predicting prices anywhere between the $25,000 mark and $1,000,000. The only common theme is that the masses seem to think that it is going to increase.
One of the explanations I have watched recently was from Tom Lee (Co-Founder of Fundstrat Global Advisor). This is the first episode of “The Bit”, he goes into great detail about something called Metcalfe’s law. This. Is an interesting theory because we can actually analyse the data and see this comparison for ourselves.
What is Metcalfe’s law and how does Bitcoin fall into this model?
“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)”. He compares the Bitcoin price movements to that of social media. Effectively the more people that learn about Bitcoin the faster it grows. Metcalfe’s Law cannot be used to predict future prices as it is simply a relation between two known outputs (the price and the number of users). In the case of Bitcoin there is a direct comparison between the price and the number of users. If this number of users continues to grown then according to Metcalfe’s law, the price of Bitcoin will increase at an increasing rate.
The Journal Of Electronic Commerce Research and Applications have released a recent study in which they compare blockchain networks to the model set out in that of Metcalfe’s law. This study effectively confirms that the price movements of popular blockchain networks like Bitcoin and Ethereum are “proportional to the square of the number of its’, nodes or end users” st is the calculation in Metcalfe’s law.
It is quite difficult to analyse a true number of bitcoin users. The number of blockchain wallets on 22nd October 2017 is 17,790,238 according to Blockchain.info. However, this does not take into account the fact the some users will have multiple wallets.
If we assume that every one of these wallets is an individual, we can work out the maximum number of Bitcoin users globally:
Realistically, this figure is likely to be much lower. However this does give us an indication hat the maximum number of Bitcoin users worldwide is 0.23408% of the world population. This number is more likely to be somewhere between 0.05% – 0.08% and the price is still incredibly high. The more this number increases the more use Bitcoin will have in the world the higher the price will grow.
Bitcoin is generally referred to as ‘digital gold’. It is believed that this generation will use Bitcoin as a store of wealth rather than Gold. If Bitcoin captures just 5% of Gold’s 8 trillion Market cap then the price of one bitcoin will be between $20,000 – $25,000 dependent on the supply of the coins.
Check out the bitGuru Bitcoin Price Calculator to see what the price of one Bitcoin would be, by changing the market cap and the total supply of Bitcoins’.
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