Bitcoin’s Metcalfe-based fair-value estimate sits around $55,000, well below last year’s price peaks. In October, BTC traded above $125,000, more than double the model’s estimate, while current prices hover around $70,000. Erb stresses that the framework is best used as a conversational anchor rather than a precise forecast. He concedes flaws in assuming a one-to-one mapping between the number of bitcoins and network participants.
Over the past decade, the ratio of actual price to fair value has ranged from a high of 4.3 to a low of 0.3, a swing similar to the CAPE ratio. Supporters say prices can deviate for extended periods without refuting the underlying logic, and the core premise that prices tend to revert to fair value has held up better than some other theories. The view is that valuation models can be informative even when markets diverge from calculated fair value.
During the 2018-19 bear market, the price-to-fair-value ratio fell from near 4.0 to below 0.5, then rebounded to above 2.0 in the ensuing rally. Today the ratio sits near 1.0, but there is no guarantee the market will stall exactly at fair value in the next cycle. Valuation models can be informative even when markets deviate markedly from calculated fair value, and investors should treat such models as contextual guides rather than definitive forecasts.
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