Bitcoin’s price was artificially inflated in 2011, 2013, and 2017. Though the evidence for this claim received some minor press, it was not carried by the mainstream media and within the crypto community it was derided as Fear, Uncertainty, and Distrust. Having reviewed the math myself I was able to confirm the 2013 and 2017 events using a different mathematical model. The 2013 high price was a 1-in-13,000 year event. The 2017 high price was a 1-in-600 year event. These are not “bubbles” in the traditional sense, though there was some of that as well.
2018 was a year when bitcoin’s price was retreating from its artificially inflated value, and returning to its fundamental value (found by applying Metcalfe’s law, below). People were not retreating from bitcoin, however. For nearly the entire year, Bitcoin added users and transaction activity.
Metcalfe’s law really does explain network pricing, including cryptocurrency networks. Excluding the periods where bitcoin’s price was manipulated, Metcalfe’s law is perhaps the single greatest factor that explains bitcoin’s price. I wrote the first peer-reviewed rigorous paper to validate this relationship with bitcoin. Since then I have done it for many other cryptocurrencies, and track their price to value weekly.
Bitcoin’s price behaved exactly as predicted, and I publicly tweeted about its price trajectory on a regular basis since April 2018:
o From my presentation to CAIA in Houston March7th
o July 6th CAIA Australia:
o From my presentation at DASS October 17th and TMA Houston November 7th:
3. Confirmation bias plays a role. Confirmation bias, also called myside bias, is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses. People also tend to interpret ambiguous evidence as supporting their existing position. Crypto bulls view positive information as a reason to buy or HODL. They ignore evidence to the contrary, or disparage it as FUD. Crypto haters view any negative information as proof that bitcoin is worth nothing. Evidence to the contrary must have been developed by idiots and therefore cannot be correct. Neither belief system is true, let alone objective.