Using Metcalfe’s Law to Show Bitcoin is a Bubble (And Why It’s Okay)

The value of Bitcoin cannot be measured like a normal asset.

The value of Bitcoin should be measured with Metcalfe’s Law:

The value of a system is proportional to the square of the number of users in it (n^2)

If you look at it this way, the meteoric rise of Bitcoin might actually be justifiable. The number of users in it has gone up. This is how many people saying that the growth seen in 2017 was healthy have been defending their position.

However, the number of users hasn’t really gone up. People aren’t buying Bitcoin to buy things. People are buying it so they don’t “miss out”. The number of people

Despite this, it’s a natural part of Bitcoin’s progress. It’s not the first bubble it has gone through (a la 2013) and it won’t be the last. There are oscillations in the Hype Cycle.

The Hype Cycle courtesy of https://i1.wp.com/newmr.net/wp-content/uploads/2012/12/Hype-Cycle.png

As emotional beings, we’re subject to hyperbole and irrational decisions: we’re sure to see the fruits of these tendencies in the coming months.

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