Summary

Metcalfe’s Law can show us the true value of Bitcoin.

Gresham’s Law explains what Bitcoin can be used for.

Bitcoin has no Proprietary value.

Unstable currencies will never replace the dollar.

Bitcoin may be the first blockchain but it’s not the only blockchain.

Invest in a blockchain that is solving a problem.

Bitcoin has destroyed many investors hopes and dreams of becoming rich in 2018. It has been a bear market for months with no end in sight. Something everyone investing in crypto should understand is that with a few exceptions the market follows whatever movement Bitcoin does. So where is Bitcoin going? There is no way to know this for certain but I can inform you of two fundamental economic laws that should be considered when valuing Bitcoin.

Two Fundamental Economic Laws

Metcalfe’s Law and Gresham’s law should both be applied when evaluating Bitcoins worth. Let’s start with the law that will determine bitcoins short term price movement. Thanks to a study done by Spencer Wheatley at ETH Zurich in Switzerland Metcalfe’s Law shows us that the value of Bitcoins network can be determined by the size of its network. This can be observed when Bitcoins Network went through a “Herding” phase when bitcoin almost reached $20,000 per coin. This ATH was reached during a moment of maximum exposure. With the most attention Bitcoin has ever seen it was being used and circulated. Supply and demand forced Bitcoins price upwards but after a surge in attention was a lack of usage that would validate its price. Bitcoin must be in use and circulating otherwise what is even the point if people don’t use Bitcoin for everyday transactions. Which brings me to the next law that Bitcoin can’t ignore.

Gresham’s Law explains that “bad money drives out good money.” If you have $1 of USD and $1 worth of Bitcoin what would you buy your coffee with if you believe that $1 in bitcoin will be worth $2 in a month? This does not imply that bitcoin is worthless, but it may be used as a savings or a reserve of sorts that you can tap into when your FIAT is exhausted. For this to work consider the longevity of Bitcoins existence and value. This brings up the question, what is proprietary to Bitcoin?

Breaking Down Bitcoin

Without an executive to represent it, it is not possible to claim ownership of its technology. This is good for the world since blockchain technology may be expanded upon freely but not good for the longevity of the value of Bitcoin. Bitcoin has been copied, rebranded and sold under new names such as Bitcoin Cash, Bitcoin Gold, Litecoin and a plethora of others. If anything, Bitcoin could be seen as a problem that is easier to replace then to fix. Let’s give Bitcoin credit for paving the way for cryptocurrency but the only redeeming quality that Bitcoin has going for itself is that it is the most recognized cryptocurrency that is used as a way of payment. The problem with any cryptocurrency, however, is that when we apply Gresham’s law to the equation it makes the entire concept of a non-stable coin for daily transaction unrealistic.

I advise that when you invest in a blockchain based investment that there is some sort of proprietary value. Look for investments that are fixing a problem. Blockchain is an amazing technology but it should not be invested upon to replace the dollar but something that may change the world. I do not think the government will make it easy for Bitcoin to gain traction in the US since regulating it would not benefit the US in anyway unless they taxed it to an unreasonable level.

Conclusion

When applying Gresham’s Law with Metcalfe’s Law to Bitcoin we find ourselves in a predicament. Is Bitcoin worth everything or is it worth the size of its network? If we base this Value on Network theory then bitcoin should be valued around $3,000 at its current usage. If we base the valuation on Gresham’s Law then it should be valued as digital gold. The problem with digital gold is that it can be replicated. You cannot replicate a gold bar but you can replicate a blockchain and call it Bitcoin Gold. Unless Bitcoins network starts to grow like it has in the past It can definitely be worth a lot less than 100 billion dollars. In contrast Bitcoins price is manipulated everyday and manipulation comes from many directions. Until Bitcoin stops controlling the cryptocurrency ecosystems with speculation on Bitcoins future usage or lack their of, investing should be done only with money you are ready to lose. If Bitcoins network grows the price should reflect that but until then it’s unlikely to see another bull market.

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