Bitcoin’s fair value is about $31,400, according to one respected forecasting model
That’s the prediction of a fair value model that’s based on something called Metcalfe’s Law. According to it, the value of a network is proportional to the square of the number of users.
It’s easy to poke holes in the model, as Erb himself is the first to point out. Some ”users” in the bitcoin network own less than one coin, while others own more than one. And many bitcoins have been lost. So the number of bitcoins that have been mined doesn’t exactly equal the number of users. The model has done an admirable job, as you can see from the chart above. It has issued warning signals when bitcoin reached unsustainably high levels and provided encouragement when its price fell too low. I first devoted a column to the model in late 2020, just as bitcoin was about to triple from around $20,000 to over $60,000. The model held that such a price rise was unjustified, and bitcoin subsequently fell back below $20,000.
Even if the model continues to do as good a job forecasting bitcoin’s price, you should still expect the cryptocurrency to oscillate between extremes well-above and below fair value. That is something all assets do, and bitcoin is no exception.
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