Bitcoin: Metcalfe’s Law Points to Six-Month Price Target of $10,000

The price of bitcoin rebounded on Sunday, helping to engineer a broader recovery in the cryptocurrency market following the latest bearish onslaught that drove values to 15-month lows. In all likelihood, the latest move higher is nothing more than a dead cat bounce as short-sellers appear keen on testing new lows in the near future. Long-term, however, bitcoin appears destined to return to $10,000 based on a regression model of Metcalfe’s Law (more on that later).

BTC/USD Update

Bitcoin’s recovery track showed greater upside on Sunday, with price action concentrated well north of $3,500 on most major exchanges. The leading digital currency traded within a $300 range on Bitfinex, with the latest reading showing $3,679. That represents a gain of 5% for the day. Bitcoin peaked at $3,745.10 earlier in the day, some $450 higher than Friday’s swing low.

Daily trade volumes across all virtual currency exchanges totalled $5.1 billion, according to CoinMarketCap. That’s well above the minimum threshold needed to sustain a much larger short-term rally. (As Hacked previously reported, bitcoin struggles to engineer higher highs when 24-hour volumes fail to break $4 billion.) It’s also likely that over-the-counter trading is equal to or greater than this amount.

Aggregate data courtesy of CoinMarketCap show an average price-per-coin of $3,586, up 5.1% over the previous day. At current prices, bitcoin has a total market capitalization of $62.5 billion. At this time last month, the digital currency was valued well north of $110 billion.

Despite the latest recovery effort, bitcoin is still in the control of bearish hands, which means that a test of the $2,800-$3,200 support zone is likely. This area is likely to trigger a fresh wave of buying as bitcoin resumes its consolidation-dump-consolidation cycle.

The total cryptocurrency market was valued at $115 billion at the time of writing, which is equivalent to bitcoin’s market cap just over a month ago. Over the past 24 hours, the market has added around $7 billion, with all major coins reporting gains.

Fair Market Value?

The latest onslaught on bitcoin’s price has invited speculation that the digital currency is trading well below its fair market value. This is further corroborated by the Forbes bitcoin price estimator, which pegs bitcoin’s fair value closer to $4,900. The data are based on a regression model based on Metcalfe’s Law, which suggests that a network’s value is proportional to the square of the number of connected users.

By analyzing the number of unique active users and daily transaction volumes, Forbes estimates that bitcoin’s price should return above $10,000 by mid-2019. Of course, bitcoin doesn’t always behave according to the rules of fundamental analysis. That being said, it’s important to note that Forbes expects active users and daily transaction volumes to rebound significantly over the forecast period, which makes the forecast more palatable than, say, Tom Lee’s $15,000 price target (by Dec. 31, 2018, no less!).

Forbes claims that the estimator has predicted bitcoin’s price with an accuracy of up to 94% between 2012-2017.

While it’s impossible to tell where bitcoin might end up six months from now, the forecast period could be an important window for gauging the currency’s future trajectory. By June 2019, Intercontinental Exchange and Nasdaq will have already launched their bitcoin markets and the U.S. Securities and Exchange Commission (SEC) will have already ruled on the VanEck SolidX Bitcoin Trust. Investors can also expect new developments around security token offerings and the regulatory approval process for exchanges looking to list them.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi