Dec 17, 2020

Can You Trust Crypto Price Forecasts?

Bitcoin surging to record values means more crypto news and forecasts. The question is how far such forecasts can be trusted. We have analyzed one of them in detail to show you there is more there than meets the eye.

Numerous news outlets have lately been quoting the "Bitcoin is Exactly Like Gold Except When it Isn't" paper by one Claude Erb, which claims the "fair price" of Bitcoin is 50% lower than the current one. How does he reach this conclusion?

The paper alleges a relationship between Bitcoin's "fair price" and its number of users - which is estimated as the number of so far generated Bitcoins. This relationship is approximated with a curve, showing a 12k USD "fair price" in Dec 2020.

As you already may have noticed, such logic is rather adventurous. The number of Bitcoin users can be better estimated using the number of Bitcoin accounts, as shown by Chainalysis here. The curve approximating the "number of coins"-"price" relationship, aptly called "Something like Metcalfe's Law and the price of Bitcoin", is not backed by any formula or calculation. Thus compounded errors make the final conclusion rather questionable.

For a better application of Metcalfe's Law to forecasting check out the research we wrote about one week ago: . And in the meantime, keep in mind forecasts, like statistics, are often used like a drunk uses lampposts: for support rather than illumination.