01
Network value scales with the square of its users.
Metcalfe’s Law, proposed by Bob Metcalfe, founder of Ethernet, in the 1980s. The formula: a network’s value is proportional to n(n-1)/2, the number of all possible connections between n users, asymptotically proportional to n squared.
02
Wallet count stands in for active users.
The report uses the number of wallets generated on the Bitcoin network as its proxy for user count.
03
Three rival models challenge Metcalfe’s original exponent.
Sarnoff’s model treats value as directly proportional to users, Briscoe’s as n log(n) rather than n squared, and Wheatley’s finds a log-linear exponent of 1.69, not 2.
04
All four models fit almost identically well.
Pearson correlation against BTC price: Sarnoff 0.918, Metcalfe 0.918, Briscoe 0.914, Wheatley 0.918.
05
The report’s own conclusion
Bitcoin was overvalued, even after the crash. “It seems the BTC price is still overvalued at the moment, even after the recent crash in January, and might not be sustainable considering the shrinking growth in the active user data.”
