Metcalfe's Law: Bitcoin Price and Adoption Analysis for the Future

[Raystonn]

So far Bitcoin's adoption looks to continue its upward trend.  The rate of adoption has been on a consistent daily rise again after hitting a local dip on 5/3/2014.  As you can see, Bitcoin's price is heavily correlated with the Metcalfe's Law value of Unique Addresses ^2.  I see no signs of this correlation changing, nor of adoption slowing.  This implies a continuation of the exponential rise in Bitcoin's price.



Here is the chart zoomed into the right side of the chart for better analysis:


Edit: Updated 8/13/2014 with latest data.  We continue to have higher lows on the Metcalfe data.

First post updated with new data.  Adoption increases.  The price dump is thus not based on fundamental data, but more on speculation.

[Swordsoffreedom]

So far Bitcoin's adoption looks to continue its upward trend.  The rate of adoption has been on a consistent daily rise again after hitting a local dip on 5/3/2014.  As you can see, Bitcoin's price is heavily correlated with the Metcalfe's Law value of Unique Addresses ^2.  I see no signs of this correlation changing, nor of adoption slowing.  This implies a continuation of the exponential rise in Bitcoin's price.

First post updated with new data.  Adoption increases.  The price dump is thus not based on fundamental data, but more on speculation.

Thanks for the update
Anyways in my opinion its just the market selling some coins for fiat more than a price dump metcalfe still applies here more unique users will correlate with exponential increases in price over some duration.

[Gaius_Octavius]

The correlation between unique addresses and market capitalization seems to be better and makes more sense for me.

I calculated it with data from blockchain.info, starting 08/17/2010 and ending today.
The correlation coefficient for unique addresses and market price is 0.9278 and for unique addresses and market capitalization it is 0.9355.

[birr]

That's why I'm surprised. On the chart we can see a curve that fluctuates around a straight line. Correct? The vertical scale is log. Correct? Therefore the straight line is an exponential line. Because no other line can be straight in the log scale. Correct? Therefore rate of adoption (squared) fluctuates around an exponential rate. Correct? Exponential line squared is still an exponential line. Correct? Therefore rate of adoption grows at an exponential rate. Correct?

Right now adoption is increasing at a linear rate.  This means we gain more users at some average constant rate of new addresses per day.  The Metcalfe value is this value squared.  So, to approximate, N(y) = y^2, where N is the number of addresses and y the year number.  N increases exponentially as time marches on in a linear fashion.

As we approach the center of the S curve, adoption will begin increasing at an exponential rate.  The Metcalfe value is this exponential rate, squared.  So, to approximate, N(y) = (y^2)^2, where N is the number of addresses and y the year number.  This is simplified to N(y) = y^4.  N increases much faster here.

Now the S-curve. It is basically an exponential curve that at it's last third slows down to horizontal line. Until that stage it's rate of growth is constant.

I will stop you here.  What you describe is not an S curve.  This is an S curve:

That's a linear chart.  OP is log chart.
Please don't get them mixed up.

[Raystonn]

We have now hit an all time high for Bitcoin adoption, and it looks to continue its upward trend.  As you can see, Bitcoin's price is heavily correlated with the Metcalfe's Law value of Unique Addresses ^2.  I see no signs of this correlation changing, nor of adoption slowing.  This implies a continuation of the exponential rise in Bitcoin's price.  Sometimes adoption leads price, and sometimes price leads adoption.  You can see this if you analyze the long-term trend in the top chart.  At this point it looks like adoption is going to lead price.



Here is the chart zoomed into the right side of the chart for better analysis:


Edit: Updated 9/8/2014 with latest data.

I have updated the first post of the thread with the latest data.

[falllling]

the more businesses "accept" bitcoin (immediately dump it on exchanges via market sells), the more it will crash.

[Raystonn]

the more businesses "accept" bitcoin (immediately dump it on exchanges via market sells), the more it will crash.

Of course you ignore the fact that the graph proves you completely wrong, don't you?  Adoption and price are strongly correlated.  Please leave your trolling outside my thread.

[falllling]

the more businesses "accept" bitcoin (immediately dump it on exchanges via market sells), the more it will crash.

Of course you ignore the fact that the graph proves you completely wrong, don't you?  Adoption and price are strongly correlated.  Please leave your trolling outside my thread.

[Raystonn]

We have now hit an all time high for Bitcoin adoption, and it looks to continue its upward trend.  As you can see, Bitcoin's price is heavily correlated with the Metcalfe's Law value of Unique Addresses ^2.  I see no signs of this correlation changing, nor of adoption slowing.  This implies a continuation of the exponential rise in Bitcoin's price.  Sometimes adoption leads price, and sometimes price leads adoption.  You can see this if you analyze the long-term trend in the top chart.  At this point it looks like adoption is going to lead price.



Here is the chart zoomed into the right side of the chart for better analysis:


Edit: Updated 9/8/2014 with latest data.

I have updated the first post of the thread with the latest data.

An all-time-high for adoption should come with an all-time-high for price soon.  Deviations from correlation are generally due to speculation and short term technical market movements.  Price and adoption do eventually converge.  In the past when adoption rose without price, you can see that price eventually rejoined adoption and began the next bubble.

[Wilhelm]

2017 looks promissing

[falllling]

2017 looks promissing

ya, why not 2027 2037 or 2047?

[Wilhelm]

2017 looks promissing

ya, why not 2027 2037 or 2047?

Good question. It all depends on how much money you need to be set for life (buy a nice house, etc.)
If I can buy a nice house for 2-5btc I will, thus making 2017 promissing
Ofcourse I will be holding on to btc all the way to 2047 and higher long after the final capitulation of the USD

[chriswilmer]

Minor suggestion: in the zoomed in graph, keep the axes labeled (I would find that helpful, anyway)

[valiron]

Hi,

May I suggest that you improve the model dividing by the number of bitcoins created and adjusting the multiplicative coefficient?

If you think about it, this will give a better estimate. It gives a little correction to your graphs.

For example, if the number of bitcoins is twice, then the price will drop by half...thus we should keep track of the creation of bitcoins overtime.

The formula will be:

Price = C x (Unique number of addresses used)^2 / (Number of bitcoins created) x C

where C is the appropriate constant (different from the one you used but approximatively equal to the one you use multiplied by 13.000.000).

[Raystonn]

Sounds like you'd rather use market cap than coin price.  I use coin price because that is what everyone in this subforum is interested in.

If I have time I will update with most recent data tonight.

[valiron]

Sounds like you'd rather use market cap than coin price.  I use coin price because that is what everyone in this subforum is interested in.

If I have time I will update with most recent data tonight.

No, this is not what I mean. I mean coin price, but it has to take account of the creation of new coins.

Read again:

The formula will be:

Price = C x (Unique number of addresses used)^2 / (Number of bitcoins created) x C

where C is the appropriate constant (different from the one you used but approximatively equal to the one you use multiplied by 13.000.000).

[Pawner]

Thanks for the chart and Hope Bitcoin prices will be higher...

[Raystonn]

Sounds like you'd rather use market cap than coin price.  I use coin price because that is what everyone in this subforum is interested in.

If I have time I will update with most recent data tonight.

No, this is not what I mean. I mean coin price, but it has to take account of the creation of new coins.

Read again:

The formula will be:

Price = C x (Unique number of addresses used)^2 / (Number of bitcoins created) x C

where C is the appropriate constant (different from the one you used but approximatively equal to the one you use multiplied by 13.000.000).

C/C = 1.  So you are just proposing dividing by number of coins.  Why?  Price is already per coin.  As number of coins increases, it is reflected in the price.

[oda.krell]

Interesting thread. Thanks, for the thorough analysis, raystonn.

I guess you know the posts by Peter R., who is also tracking price/mcap as a function of network size under the metcalfe assumption (MA).

Here's one funny idea I had on this topic when I looked at it myself a while ago (it's not fleshed out yet, just did some imprecise calculatios "by hand" on this, so be forgiving please...)

When modeling price/mcap as a function of network size under MA, the empirically determined parameter is the exact coefficient that determines the ratio of network size to price.

Here's the idea I had... perhaps there need to be /two/ (largely unrelated) parameter sets: one for "bubble times", and one for "regular market time". It seems that price is strongly related to network size both in normal times and in bubble times, but with different parameters determining the exact price at the time.

[valiron]

Sounds like you'd rather use market cap than coin price.  I use coin price because that is what everyone in this subforum is interested in.

If I have time I will update with most recent data tonight.

No, this is not what I mean. I mean coin price, but it has to take account of the creation of new coins.

Read again:

The formula will be:

Price = C x (Unique number of addresses used)^2 / (Number of bitcoins created) x C

where C is the appropriate constant (different from the one you used but approximatively equal to the one you use multiplied by 13.000.000).

C/C = 1.  So you are just proposing dividing by number of coins.  Why?  Price is already per coin.  As number of coins increases, it is reflected in the price.

No my friend, it is C/(Number of coins created) that is not constant equal to one since "number of coins created changes over time (C stays the same).

The constant C has to be found by historical interpolation (in the same way you found your multipicative constant).

Sorry, there was a typo in the formula (just multiply once by C)

Price = C x (Unique number of addresses used)^2 / (Number of bitcoins created)