I dabbled in the Bitcoin (BTC-USD) scene many years ago and even wrote a few articles here about Seeking Alpha in the cryptocurrency’s early days – it used to be exclusively under the Winklevoss ETF (COIN). I have a mining operation down in New Mexico where I provided the money for a friend of mine to mine bitcoin at his house. We have several solar panels installed so our cost is the cards. He’s well connected in that part of the world and has a few other friends who run different types of operations down in New Mexico.
A few of us were talking about an article about Metcalf’s law that was going over our desks. I myself studied macroeconomics and statistics. The others in the discussion were math students, programmers, and other nerdy guys. Since we’re all involved with crypto in one capacity or another, it was a lively discussion… and very nerdy. I promise to tone down the nerdyness of what we decided.
The conclusion of the discussion: Ethereum (ETH-USD) to surge above $20,000 on Metcalf law. Alongside this, some of the other currencies will follow.
Metcalf’s Law addresses network economics and helps explain how a system is supported by the number of people in the system. Metcalf’s law states that the effect of a telecommunications network is proportional to the square of the number of users of the system (n²).
Here’s an example: If you have two phones, you can have one line and one line only. But if you have five phones, you can have 10 connections. 12 phones can make 66 connections.
Here is a nice picture from Wikipedia:
(Image source: By Woody993 at English Wikipedia – Transferred from en.wikipedia to Commons., CC0)
The nutshell The explanation for this is that network growth is driven by the number of connections. More connections allow for more growth and it can be mapped with a simple math equation.
Initially, there wasn’t much evidence for Metcalf’s law. In fact, it would take 30 years to prove it. This evidence was an analysis of European internet usage and connectivity. The researchers were able to use the n² to partially show the proportional gains in Internet use. Likewise, (n log n) was applied to show proof of the application of Metcalf’s law to network economics and how the growth of the Internet in Europe was mapped mathematically.
The researchers then applied the same principles to Facebook (FB) growth rate. When you think of Facebook, it’s a great example of how a business relies on users, how more users would lead to more usage, and ultimately how the whole system becomes ubiquitous in our lives.
If you think about it, what if Facebook never really sparked much interest from the original people? Where would it be today? Without that initial connectivity and the spread of enthusiasm, Facebook might never have gained the momentum it needed to attract a necessary crowd of viewers to become relevant.
The same principles were then mathematically applied to Bitcoin. As it turns out, 70% of Bitcoin’s value can be explained mathematically by looking at network size and the number of people connected within the network. A coincidence rate of 0.7 is very strong, which brings us back to Ethereum.
If you look at ETH network size, number of connections and price history, Metcalf law is repeated again with Ethereum. In fact, Ethereum is outperforming Bitcoin’s movements, but this could be an application of Metcalf’s Law regarding cryptocurrencies in general. As more people integrate cryptos into their lives, cryptos are becoming more accepted and this growth continues to drive cryptos in general. Ethereum’s movements can be simultaneously cause and effect of the crypto network’s network economy.
And if Ethereum indeed repeats the moves of Bitcoin, Ethereum will reach $20,000.
But all this puts the thinking in a conundrum. If Ethereum is indeed going higher, as it is about to, wouldn’t Bitcoin continue? If there is a level of acceptance for both and the number of people getting involved based on the price action as well as the headlines BTC is making, wouldn’t BTC keep pushing higher?
And if so, how do you decide how much of a currency.
Bitcoin may have size restrictions due to the number of people in the system.
If you need proof of that, just look at Facebook’s growth rate in developed countries like North America and Europe. The growth rate remains moderate compared to Facebook’s original figures. That makes perfect sense when you think about it. There is a finite number of people living in these countries.
I think about it philosophically and wonder how much BTC can push. The latest movements are amazing and difficult to explain. Because of this, I believe diversification is something I have to be very aggressive about.
I get paid in BTC from my mining operation down in New Mexico. I just throw it in my wallet and never really look. My friend down there does all the dirty work associated with maintaining the system. I have five homemade decks of five cards each. Because we use solar panels, our costs are zero apart from the initial cost of the cards and solar panels. However, my friend hasn’t had to pay for electricity for a few years, so it was a self-investment that was worth it.
I have traded BTC here and there using delta neutral options strategies and have been able to grow my wallet as a result. But it’s no longer an occupation that draws a lot of attention. As it is right now, option prices are making this strategy unaffordable due to the strong crypto upside.
However, when I start thinking about applying the principles of Metcalf’s Law to Ethereum, I think I need to start converting what I earn into ETH. It looks like Ethereum is going higher; much higher. It looks like ETH will reach $20,000 just like Bitcoin.
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