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An alternative model of Metcalfe’s Law for valuing Bitcoin

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  • Van Vliet, Ben

Abstract

This short paper presents a new model of the market capitalization of Bitcoin that builds upon a standard model based upon Metcalfe’s Law. The model incorporates the logistic diffusion of the innovation, which could be extended to capture population and economic factors. This model appears to have some improved efficacy over the standard model. Using this model, some areas for future research are briefly discussed.

Suggested Citation

  • Van Vliet, Ben, 2018. "An alternative model of Metcalfe’s Law for valuing Bitcoin," Economics Letters, Elsevier, vol. 165(C), pages 70-72.
    • Handle: RePEc:eee:ecolet:v:165:y:2018:i:c:p:70-72
    DOI: 10.1016/j.econlet.2018.02.007
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    References listed on IDEAS

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    1. Pavel Ciaian & Miroslava Rajcaniova & d’Artis Kancs, 2016. "The economics of BitCoin price formation," Applied Economics, Taylor & Francis Journals, vol. 48(19), pages 1799-1815, April.
    2. Sha Wang & Jean-Philippe Vergne, 2017. "Buzz Factor or Innovation Potential: What Explains Cryptocurrencies’ Returns?," PLOS ONE, Public Library of Science, vol. 12(1), pages 1-17, January.
    3. Gandal, Neil & Hamrick, JT & Moore, Tyler & Oberman, Tali, 2018. "Price manipulation in the Bitcoin ecosystem," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 86-96.
    4. Adam Hayes, 2015. "A Cost of Production Model for Bitcoin," Working Papers 1505, New School for Social Research, Department of Economics.
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    Cited by:

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    2. Christie Smith & Aaron Kumar, 2018. "Crypto‐Currencies – An Introduction To Not‐So‐Funny Moneys," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1531-1559, December.
    3. Akyildirim, Erdinç & Corbet, Shaen & Cumming, Douglas & Lucey, Brian & Sensoy, Ahmet, 2020. "Riding the Wave of Crypto-Exuberance: The Potential Misusage of Corporate Blockchain Announcements," Technological Forecasting and Social Change, Elsevier, vol. 159(C).
    4. Koch, Sophia & Dimpfl, Thomas, 2023. "Attention and retail investor herding in cryptocurrency markets," Finance Research Letters, Elsevier, vol. 51(C).
    5. Arturas Sabalionis & Wenbo Wang & Hail Park, 2021. "What affects the price movements in Bitcoin and Ethereum?," Manchester School, University of Manchester, vol. 89(1), pages 102-127, January.
    6. Bruno Mazorra & Victor Adan & Vanesa Daza, 2022. "Do Not Rug on Me: Leveraging Machine Learning Techniques for Automated Scam Detection," Mathematics, MDPI, vol. 10(6), pages 1-24, March.
    7. Aysan, Ahmet Faruk & Caporin, Massimiliano & Cepni, Oguzhan, 2024. "Not all words are equal: Sentiment and jumps in the cryptocurrency market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    8. Kyriazis, Nikolaos & Papadamou, Stephanos & Corbet, Shaen, 2020. "A systematic review of the bubble dynamics of cryptocurrency prices," Research in International Business and Finance, Elsevier, vol. 54(C).
    9. Flori, Andrea, 2019. "News and subjective beliefs: A Bayesian approach to Bitcoin investments," Research in International Business and Finance, Elsevier, vol. 50(C), pages 336-356.
    10. Bruno Mazorra & Victor Adan & Vanesa Daza, 2022. "Do not rug on me: Zero-dimensional Scam Detection," Papers 2201.07220, arXiv.org.
    11. Yang, Tongbin & Zhou, Bo, 2024. "Local FinTech development, industrial structure, and north-south economic disparity in China," International Review of Financial Analysis, Elsevier, vol. 93(C).
    12. Dimitrios Koutmos & Wang Chun Wei, 2023. "Nowcasting bitcoin’s crash risk with order imbalance," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 125-154, July.
    13. Apergis, Nicholas & Koutmos, Dimitrios & Payne, James E., 2021. "Convergence in cryptocurrency prices? the role of market microstructure," Finance Research Letters, Elsevier, vol. 40(C).
    14. Kajtazi, Anton & Moro, Andrea, 2019. "The role of bitcoin in well diversified portfolios: A comparative global study," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 143-157.
    15. Canh, Nguyen Phuc & Wongchoti, Udomsak & Thanh, Su Dinh & Thong, Nguyen Trung, 2019. "Systematic risk in cryptocurrency market: Evidence from DCC-MGARCH model," Finance Research Letters, Elsevier, vol. 29(C), pages 90-100.
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    18. Andrea Flori, 2019. "Cryptocurrencies In Finance: Review And Applications," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(05), pages 1-22, August.

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    More about this item

    Keywords

    Cryptocurrency; Metcalfe’s Law; Diffusion of innovation;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G1 - Financial Economics - - General Financial Markets

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