Using Metcalfe’s Law to Predict Bitcoin’s Future Leads Us to $91,000 in 2020

An evaluation of bitcoin’s trajectory using Metcalfe’s Law leads to a price-per-coin of $91,000 in just two years, according to long-term crypto bull and Fundstrat founder Tom Lee.

Bitcoin’s Bull Market Has Only Just Begun

Just when many in the crypto world have turned their back on bitcoin, Wall Street fund manager Tom Lee has maintained a strongly bullish outlook. In a recent note to clients, he argued that the cryptocurrency was still in a long-term bullish phase despite multiple corrections over the last two months.

Lee has repeatedly appealed to Metcalfe’s Law in explaining bitcoin’s price movements. Basically, Metcalfe’s Law states that the value of a network is proportionate to the square of the number of users. For example, a telephone is completely useless if you are the only one who owns one, but its utility rises exponentially as other people buy telephones.

Using this same principle, Lee argues that bitcoin could reach a valuation of $91,000 per unit in 2020. This analysis factors in such variables as the crypto market’s growing money supply, the ratio of alternative assets to that money supply and bitcoin’s share of the that pie.

Lee used a similar approach back in October to predict $25,000 bitcoin in five years. He also said Metcalfe’s Law could be used to explain the vast majority of bitcoin’s price movement.

“If you build a very simple model valuing bitcoin as the square function number of users times the average transaction value. Ninety-four percent of the bitcoin moves over the past four years is explained by that equation,” he said.

Bitcoin traded around $8,200 on Friday. Using Lee’s forecast, the currency would rise another 1,000% by 2020.

Unfazed by Recent Downturn

Lee has maintained his remarkably bullish tone even as bitcoin dropped 70% from its all-time record. He said the percentage drop was almost identical to the one seen in mid-2013, which was then followed by a 700-day rally of more than 55,000%.

That being said, Fundstrat also warned investors of several short-term technical risks that materialized after the Mar. 6 decline.

“Weekly indicators that track one to two quarters are still positive,” according to Fundstrat strategist Robert Sluymer. “We think it’s trying to form a bottom,” he said. “A further silver lining is the short-term indicators are oversold.”

He added that March is usually the worst month for bitcoin, with losses in six of the last seven years.

Investors eager to speculate about bitcoin’s next bull run may want to pay attention to an upcoming industry conference on May 14-16. The Consensus 2018 event will bring together over 4,000 attendees from the world of traditional finance, top-five accounting firms and information technology. Representatives from the KPMG, PwC, IBM, Citibank, Procter & Gamble, Microsoft and Siemens are expected to attend. The blockchain and crypto event could help extinguish much of the fear, uncertainty and doubt currently plaguing the market.

Consensus has actually proven to be much more than just an industry event; it will be co-hosted by the New York Economic Development Corporation. That’s a significant backing for a market still vying for the hearts and minds of mainstream investors.

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