Bitcoin Spreads Like a Virus

27 Pages Posted: 23 Apr 2019 Last revised: 1 Jul 2020

Date Written: March 20, 2019

Abstract

In this paper we provide a mathematical derivation that links traditional time-value-of-money concepts to Metcalfe value, and use Bitcoin, Facebook as numerical examples of the proof. There is compelling evidence that suggests that the growth and price of bitcoin and other cryptocurrencies are likely to proceed according to a relatively straightforward mathematical model similar to the growth curves of Facebook and other networks. Using observed data for Bitcoin, we derive the relationships between price, number of users, and time, and show that the resulting market prices likely follow a Gompertz sigmoid growth function. This function, historically used to describe the growth of biological organisms like bacteria, tumors, and viruses, likely has some application to network economics. We conclude that the long-term growth rate in users has considerable effect on the long-term price of bitcoin.

Keywords: bitcoin, cryptocurrency, valuation, growth model, network economics, network effect, Metcalfe's Law

JEL Classification: C22, C49, C51, C53, C58, D85, E40, E42, E49, E51, G12, G17, L14

Suggested Citation

Peterson, Timothy, Bitcoin Spreads Like a Virus (March 20, 2019). Available at SSRN: https://ssrn.com/abstract=3356098 or http://dx.doi.org/10.2139/ssrn.3356098

Timothy Peterson (Contact Author)

Cane Island Alternative Advisors ( email )

9550 Spring Green Blvd Ste 408-114
Katy, TX 77494
United States

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