Bitcoin has momentarily dipped below its network value as estimated by the Metcalfe model for the first time in almost two years, according to network economist Timothy Peterson.
This is generally an indicator that often signifies the later stages of market adjustments, he noted.
“While this doesn’t definitively indicate a bottom, it suggests that most leverage has been eliminated and the ‘bubble’ has contracted,” Peterson remarked.
Metcalfe value calculates the intrinsic value of a network based on activity and user growth, and has historically provided valuable insights during significant market shifts.
The decline below the network value coincided with bitcoin’s most pronounced pullback in this cycle, a decline of approximately 36% that brought the price down to around $80,000. This reduction eliminated leverage and unwound speculative excess, paving the way for a swift recovery. Bitcoin has since risen back above $90,000 as buyers entered the market and network conditions stabilized.
Throughout the 2022 bear market, bitcoin consistently traded below its Metcalfe value as activity and sentiment waned. However, since the new cycle commenced in early 2023, the price has remained steady above this benchmark, buoyed by increasing participation and renewed capital inflows. The latest correction marked the first substantial break in that trend.
Historically, periods when bitcoin trades beneath its Metcalfe value have yielded robust future returns. The twelve-month performance in these scenarios has been positive 96% of the time, averaging a gain of 132%, compared to 75% and 68% in other periods, according to Peterson.
Growing Tailwinds for the Network
Additionally, the supply held by long-term holders (LTH) has notably increased over the past 10 days, rising by around 50,000 BTC. LTHs are defined as individuals who have held their bitcoin for at least 155 days. This group has been a significant source of selling pressure over the past year. As coins continue to mature from short-term speculative ownership to LTH wallets, and with LTHs now accumulating rather than liquidating on a net basis, this decrease in sell-side pressure should act as a substantial tailwind for bitcoin’s price.
