Bitcoin has taken a heavy hit, falling almost 30% from its October high. That kind of decline usually sparks the same question: is this finally the dip worth buying?
Right now, the answer might still be no.
According to one valuation framework, the market is still pricing Bitcoin well above its estimated fair value.
This conversation circles back to Metcalfe’s Law, a framework that links the value of a network to the number of people using it.
Claude Erb, a former commodities portfolio manager at TCW Group, has been applying the idea to Bitcoin for years. In simple terms, he uses the total number of bitcoins mined as a stand-in for user count, then projects what the asset should be worth.
Erb is the first to admit this method is not perfect. Some investors own multiple coins, others hold tiny fractions, and plenty of bitcoins have disappeared forever. Still, he believes the model does something valuable. It creates what he calls a “conversational anchor”, a reference point that cuts through hype cycles and shifting narratives.
Based on the model, Bitcoin’s fair value sits around $53,000. Today’s price is about $33,000 above that. The spread sounds extreme, but historically Bitcoin has wandered much further away from its fair value. Over the past five years, the price-to-value ratio has climbed as high as 3.2 and sunk as low as 0.4.
Even earlier this year, when Bitcoin crossed $100,000, the ratio peaked at only 2.4. That means the rally did not break any historical patterns. The recent selloff has pulled the ratio down to roughly 1.6, yet that is still comfortably above levels that historically signaled strong long term entry points.
So for investors scanning the market for a flashing buy signal, the takeaway is clearer now. A correction does not automatically create value. And while Bitcoin’s slide has been steep, the model suggests buyers may still be paying a premium.
For now, the Metcalfe lens offers useful perspective. It is a reminder that price action and real network strength do not always move in sync. Even Erb acknowledges the model has flaws, yet he also notes that a valuation framework does not need to be flawless to help investors separate noise from signal.
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