Researchers Claim Bitcoin Is Overrated
A new research conducted by Swiss researchers reveals that bitcoin is overrated.
Over the years, efforts have been made to put an estimated value on bitcoin. However, structures used to determines its values concentrate on the imaginary future situations rather than the present state of the matters.
According to economic theory, an assets values are determined according to the economic theory. But the instability in bitcoin prices has created a broad and different range of values.
Nevertheless, bitcoin impressive increase has gained the attention of academic researchers and economists, who have discovered bonds and trends in its price wing and value. Han Varian, Google’s chief economist set the pace in 2014 by putting forward that paper money obtained its value from its network effects and not from government support.
Earlier in January, researchers introduced a paper relating bitcoin too Metcalfe’s law. Initially created for telecommunication networks, Metcalfe’s laws orders that a network’s value is equal to the number of users squared. The paper imagined that transaction volume at a certain period gives important data.
A recent research done by researchers at ETH Zurich went on to prove this claim and used Metcalfe’s law to bitcoin’s present valuations. Fans of bitcoin will not be pleased by the outcome. “… (There is) current substantial but not unprecedented overvaluation in bitcoin’s price,” the authors stated.
The term ‘network effects’ denotes to the number or cryptocurrency users. However, the paper’s authors changed this information. This is so because all nodes in bitcoin’s blockchain are not altogether related to each other. The authors were with the perception that bitcoin is a “sparsely connected network” whereby each user has linked to only 10,000 other users rather than 1 million. In their opinion, this is a more logical explanation of the present condition of bitcoin’s network.
Connecting this figure to the general equation for Metcalfe’s law and creating room for expected network growth, which is likely to fall with time until 2026, the authors 2.60 million by 2023. In light of those figures, bitcoin ought to as of now have a valuation between $22 million to $44 million.
Bitcoin’s market cap is at present $119 billion, proposing that bitcoin’s esteem is more than double the estimated by the researchers. “Some separate fundamental development would need to exist to justify such high valuation, which we are unaware of,” the paper’s authors write.
Hence, what does the presently overrated bitcoin market imply? According to the suggestion of the authors, the present market seems similar to that of early 2014. During that period, the cryptocurrency’s price toyed with the $1,000 level.
However, a rush of unpleasant news with regards to the crash of Mt. Gox, a Japan-based cryptocurrency, initiated a drop in bitcoin’s price, which stayed dormant for the next two years before it started moving upwards.
