On-Chain metrics giving positive outlook for BTC

https://preview.redd.it/wyh3g4lw1bqa1.png?3295&format=png&auto=webp&s=71051454465187bbfe02289cefc219f24e853d43

Getting a sense of if BTC is overvalued or undervalued can provide a lot of insights, however, there are a lot of different ways to “value” BTC, and they don’t always agree. It’s often helpful to look at different on-chain metrics, or valuation metrics, that correspond to different components of the Bitcoin ecosystem. We developed a metric we call the Metcalfe Law Discount Premium indicator (MLDP) that’s based on Robert Metcalfe’s network theory. Metcalfe’s Law states that the value of a network is proportional to the square of the amount of network participants. By comparing a valuation of the network in dollars (Marketcap) to a valuation based on the number of participants (from Metcalfe’s Law while accounting for lost supply, non active members etc.), the MLDP indicates if BTC is being sold at a premium, or discount.

Taking the Z score of this indicator makes it an oscillator with minimal drift in time. It oscillates with the cycles of Bitcoin, and is very useful for confirming a trend. Historically, it’s particularly good at confirming when we are exiting a market bottom (the red zones in the graph).

The last few weeks saw this indicator sitting close to a value of 0, suggesting a healthy value for the network. However, the MLDP is currently on an up trend, and typically does not undergo a reversal if it's coming from an extremely discounted (negative) value, which has been the case from the last few months. Thus, we take it as a sign of a positive outlook for BTC.