Texas Researcher Proves Bitcoin Has Real Value

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The oft-maligned digital currency is not just "monopoly money."

HOUSTON - Dec. 21, 2018 - s4story -- An independent researcher has used a little-known mathematical formula to show that bitcoin has real value and can serve as a currency just as well as the dollar, pound, euro, or yen.

"Metcalfe's Law as a Model for Bitcoin's Value" published in the Alternative Investment Analyst Review uses statistics and real world data from bitcoin to show that bitcoin's price is not random.  The mathematical formula, known as Metcalfe's Law, was developed in the 1990s as a way to describe the value of computer networks.  Recently, the formula was used to explain how Facebook grew so rapidly.  This is the first time the formula was applied to bitcoin, and the results were enlightening.

According to author Timothy Peterson, most of bitcoin's price movement is the result of an increasing number of users who transact among each other.  Peterson is an investment manager and part-time finance professor who also wrote a book on how to evaluate the performance of hedge funds, commodities, and currencies.

As the number of bitcoin users grows, the overall value of bitcoin has moved along in lockstep.  "Something like 80- to 90 percent of bitcoin's price is explained by this formula, which looks at growth in users and transactions over long periods of time," said Peterson.

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Bitcoin is a digital ledger system that keeps track of transactions and accounts.  It features strong encryption and redundant processing locations, commonly known as "blockchain."  Bitcoin was the first application of blockchain technology.  Blockchain has since been used to launch other digital coins, known as cryptocurrencies.

A draft of Peterson's research was first published online early in 2018, where it quickly became one of the most downloaded bitcoin papers of all time on a research database known as SSRN.  Since then, Peterson has applied the formula to other cryptocurrencies.  "The math works for all of them.  It looks like this really is how cryptocurrency is valued," said Peterson.  "The price no longer needs to be a mystery."

Peterson's research was also used to show that bitcoin's large price swings were likely the result of manipulation, rather than euphoria.  "Several other researchers have documented some fraud in bitcoin in 2013 and 2017," added Peterson.  "Our research confirms this was the case, and we saw in 2018 that bitcoin fell back to the value the formula predicted."

Despite the shenanigans and recent price decline, Peterson, who does not currently own bitcoin, believes the future for bitcoin and other cryptocurrencies is bright, citing increased regulatory efforts and heightened investor interest.

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Press Kit

A press kit with layman's explanations of cryptocurrency and Metcalfe's law can be found at https://www.caneislandcrypto.com/press/

"Metcalfe's Law as a Model for Bitcoin's Value" Alternative Investment Analyst Review, Q2 2018, Vol. 7, No. 2, 9-18. Available at  https://caia.org/aiar/3772 (https://caia.org/aiar/3772)



Cane Island Alternative Advisors / Cane Island Cryptocurrency

Explanatory video: https://vimeo.com/294928171




Timothy Peterson

Source: Cane Island Alternative Advisors
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