Bitcoin could provide significantly lower returns in the long term than many investors expect. A well-known valuation model sees the fair value of the cryptocurrency as having already been reached.
• A model based on Metcalfe’s Law sees Bitcoin’s fair value at the current price level
• The model repeatedly classified past price deviations in a plausible way
• A stable exchange rate makes Bitcoin more suitable for everyday use as a means of payment
Metcalfe’s Law and its relation to Bitcoin
Metcalfe’s Law states that the value of a network grows proportionally to the square of its membership. Applied to the crypto market, this means: The more nodes, active wallets or addresses the Bitcoin network has, the steeper the fair price theoretically rises. Transferring this principle to Bitcoin is not a new idea: Timothy F. Peterson of Cane Island Alternative Advisors presented a quantitative analysis in the CAIA Association journal in 2018 that showed that the medium to long-term price of Bitcoin follows the model based on Metcalfe’s law with a coefficient of determination of over 80 percent. At the time, Peterson described Bitcoin as the first widespread, transparent application of a network that is directly monetized with the creation of each individual wallet.
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Claude Erb, former commodities portfolio manager at the TCW Group, took up this approach and developed it further, as financial journalist Mark Hulbert writes at MarketWatch. Erb updated the model and published a research paper on the Social Science Research Network (SSRN) in June 2026 entitled “Why Have Bitcoin’s Average Returns Declined for Years?” Erb emphasized that Bitcoin’s previous price behavior was consistent with the model, but that this did not constitute confirmation of its accuracy.
Returns close to zero? What the model shows specifically
According to Hulbert, the Bitcoin price is currently almost exactly on the fair value line calculated by the model. In the past, every upward or downward deviation always resulted in a return to this line, which supports the predictive power of the model.
In addition to calculating the fair value, the model is also helpful in predicting the possible future return of Bitcoin. The growth dynamics of the network are crucial. Since user growth has leveled off over the years, the issuance of new coins is strictly limited by the protocol and it is becoming increasingly difficult to mine new Bitcoins, the fair value curve is also increasingly flattening according to Hulbert’s presentation. Specifically, the model predicts a price of around $120,000 for Bitcoin in 2140, when the issuing limit of 21 million coins is expected to be reached. According to Hulbert, this corresponds to an annualized return of 0.6 percent compared to the current price. According to the model, the Bitcoin price will then stagnate.
The 21 million limit and its time horizon
The supply of Bitcoin is limited by the protocol to exactly 21 million units. Satoshi Nakamoto anchored this mechanism in the Bitcoin source code: every 210,000 blocks, roughly every four years, the block reward for miners is halved until the reward approaches zero. According to Baltex, around 19.8 million Bitcoin were in circulation by the end of 2025, and the remaining around 1.2 million will be gradually released by 2140. This mechanism has a direct consequence for Metcalfe’s law: If the network no longer grows quickly enough to compensate for the flattening new output, the fair value curve loses its upward slope potential. Erb presented this quantitatively in the SSRN paper, and Hulbert derived from this the forecast of an annualized return of less than one percent.
Why a stable price wouldn’t be bad news
But here lies the really unexpected part of the argument. Bitcoin was originally designed as a decentralized means of payment that does not require intermediaries. Strong price fluctuations are structurally opposed to this purpose: Anyone who uses Bitcoin as a means of payment but has to constantly expect significant price changes will be more likely to keep it as an object of speculation rather than actually pay with it. Hulbert is therefore of the opinion that a stable price Bitcoin could paradoxically fulfill what early proponents had promised from the start: a functional digital currency suitable for everyday use.
Limits of the model
However, Metcalfe’s law is not a consensus in financial science. Peterson’s 2018 analysis itself points to a possible reverse causality: rising Bitcoin prices could be what attracts new users, not the other way around. Erb also admits this. The model provides a useful framework for thinking, but not a certain truth about Bitcoin’s price development.
However, according to Hulbert, competing forecasts, including those with price targets of $1 million or more, have a worse empirical track record than the Metcalfe’s Law model, which can at least explain why Bitcoin returns have been declining for years. And the Metcalfe model at least has the advantage of repeatedly correctly classifying past price deviations.
Paul Schütte, editorial team at finanzen.net