Research paper suggests Bitcoin is nearly 4x overvalued

I saw this over on reddit. Further, I thought it was worth sharing over on Steemit.

https://arxiv.org/abs/1803.05663 - Hit the PDF download on the right to read the whole article.

Some interests bits:

"The model thus characterizes a process in which, as speculative frenzy intensifies, the bubble matures towards its endogenous critical point, and becomes increasingly unstable, such that any small disturbance can trigger a crash. This has been further formalized in the so-called JLS model where the rate of return accelerates towards a singularity, compensated by the growing crash hazard rate [25, 28], providing a generalized return-risk relationship. We emphasize that one should not focus on the instantaneous and rather unpredictable trigger itself, but monitor the increasingly unstable state of the bubbly market, and prepare for a correction."

"In this paper, we have combined a generalized Metcalfe’s law, providing a fundamental value based on network characteristics, with the Log-periodic Power law Singularity (LPPLS) model, to develop a rich diagnostic of bubbles and their crashes that have punctuated the cryptocurrency’s history. In doing so, we were able to diagnose four distinct bubbles, being periods of high overvaluation and LPPLS-like trajectories, which were followed by crashes or strong corrections. Although the height and length of the bubbles vary substantially, we showed that, when scaled to the same log-height and length, a near-universal super-exponential growth is documented. This is in radical contrast to the view that crypto-markets follow a random walk and are essentially unpredictable."

Triggering events for past and current crash:

1. 2011-06-1918: Mt. Gox was hacked, causing the bitcoin price to fall 88% over the next 3 months.
2. 2012-08-28: Ponzi fraud of perhaps hundreds of thousands of bitcoin under the name bitcoins
   Savings & Trust; charges filed by Securities and Exchange Commission.
3. 2013-04-10: Major bitcoin exchange, Mt Gox, breaks under high trading volume; price falls more
   than 50% over next 2 days.
4. 2013-12-5: Following strong adoption growth in China, the People’s Bank of China bans financial
   institutions from using bitcoin; bitcoin market cap drops 50% over the next two weeks. 07-02-
   2014: operational issues at major exchanges due to distributed denial of service attacks, and two
   weeks later Mt Gox closes.
5. 2017-12-28: South Korean regulator threatens to shut down crypto currency exchanges.

Now for the overvalued part:

"Focusing on the outlook for bitcoin, the active user data indicates a shrinking growth rate, which a range of parameterizations of our generalized Metcalfe’s law translates into slowing growth in market capitalization. Further, our Metcalfe-based analysis indicates current support levels for the bitcoin market in the range of 22–44 billion USD, at least four times less than the current level. On this basis alone, the current market resembles that of early 2014, which was followed by a year of sideways and downward movement. Given the high correlation of cryptocurrencies, the short-term movements of other cryptocurrencies are likely to be affected by corrections in bitcoin (and vice-versa), regardless of their own relative valuations."

we'll have to see if they are correct about the overvaluation of Bitcoin. But assuming their data is correct (and it looks that way) we are going to be in for a while of sideways trading or dropping down to 1-2 thousand dollars per Bitcoin.

Below is the sigmoidal steps plotted against the number of active Bitcoin users. Interesting article and I recommend reading it