Should the Swiss researchers be right in their calculations, the resulting drop in value would result in a $41 billion drop in value, with the bitcoin’s current market value standing at $118 billion.
The loss in value is based on the observation that the growth of new Bitcoin users is slowing down which will automatically result in the slowdown of bitcoin’s market capitalization.
Metcalfe's law which talks about the progress and value of a network, states that a network's value is equal to the square of its users. Following this formula, the resulting value of the Bitcoin market should be no more than $77 billion by the end of 2018.
Bitcoin had a phenomenal year in 2017 and analysts saw its value consistently rise in 2017, reaching historic highs and crossing the $19,000 limit. However, in the first three months of 2018, bitcoin’s value dropped by over 50 percent and at the time of this writing stands at $7,275.
In a statement, the Swiss researchers said
Looking forward, our analysis identifies a substantial but not unprecedented overvaluation in the price of bitcoin, suggesting many months of volatile sideways bitcoin prices ahead
Is The Bitcoin Bubble On The Verge Of Bursting?
Along with Metcalfe's Law, the researchers also incorporated the ‘Log-Periodic Power Law Singularity’ which is a math formula that helps looks at the behavior of speculative bubbles. The research clearly shows four Bitcoin bubbles based on the model. For example, the 2011 hack of the now-closed Mt. Gox Bitcoin exchange triggered a crash. The South Korean threat to shut down all cryptocurrency exchanges in December 2017 also caused a drop in bitcoin value.
The interest in cryptocurrency from private and institutional investors is what allowed Bitcoin to reach its great heights in 2017.
For example, CME and Cboe, the world's largest futures exchanges, launched Bitcoin futures last year and this fueled a lot of investment. The massive interest in bitcoin in recent months has drawn the attention of regulators in several countries such as South Korea and Japan. They decided to impose stringent regulations on bitcoin and the crackdown also resulted in tech giants like Facebook, Twitter and Google stop promoting and advertising bitcoin. The Swiss researchers predict that bitcoin will be hit with more stringent measures which will cause the cryptocurrency to decline significantly in the coming months.