OPEN-SOURCE SCRIPT
BTC - Metcalfes Law (Deviation)
Title: BTC – Metcalfe's Law (Deviation) | RM
Overview & Philosophy
The BTC – Metcalfe's Law (Deviation) is a fundamental valuation oscillator that answers one of the most important questions in network economics: "Is the current price justified by the number of active users?"Metcalfe's Law states that the value of a network is proportional to the square of the number of its connected users (Value = Users squared). In the context of Bitcoin, this means that as the number of active addresses grows linearly, the network's fair value should grow exponentially.This script identifies periods where Bitcoin’s market capitalization has become "overextended" or "undervalued" relative to its actual network activity.
Methodology
The indicator performs a rolling log-log regression (Ordinary Least Squares) between Bitcoin's Market Cap and its Active Address count over a 730-day (2-year) window.
1. The Regression:The script calculates the statistical relationship:ln(Market Cap) = alpha + beta * ln(Active Addresses)
2. Pure Metcalfe vs. Generalized Metcalfe:
• Pure Metcalfe (Beta=2): By default, the script enforces a slope of 2.0, adhering to the classic mathematical law.
• Dynamic Fit: Users can disable the "Enforce Metcalfe" setting to let the model find the best historical fit (often resulting in a Beta between 1.5 and 1.8).
3. The Deviation (The Signal):
The resulting line represents the Log-Deviation from Fair Value.
• A value of 0.0 means Bitcoin is priced exactly according to its network utility.
• Positive values indicate a "valuation premium".
• Negative values indicate a "valuation discount".
How to Read the Chart
🔴 The Red Zone (Overvaluation > 1.0)
Meaning: The Market Cap has outpaced the growth of active users. Historically, these peaks represent speculative bubbles or cycle tops where price is driven by hype rather than utility.
🟢 The Green Zone (Undervaluation < -0.25)
Meaning: The network is being utilized, but the price has crashed below its fundamental support. Historically, these "Utility Floors" have marked the most profitable accumulation zones in Bitcoin’s history.
🟠 The Orange Line (Fair Value Transition)
Meaning: The market is in a healthy growth phase, moving in lockstep with user adoption.
Strategy & Interpretation
This tool is a Macro Compass. It is designed to help investors stay objective during periods of extreme market emotion.
• In a Bull Market: Watch for the deviation to hit the Red Zone. This is your signal that the "Network Utility" can no longer support the price, and a major correction is likely imminent.
• In a Bear Market: Look for the "Green Floor." When the price stays below the -0.25 level despite stable user activity, it suggests a massive mismatch between value and price—a classic buy signal.
Settings
• Regression Window (Default: 730 Days): Chosen to capture mid-to-long term cycle trends. Adjust to shorter timeframes for more dynamic behavior or longer timeframes (like 1460 Days) to catch longer cycles.
• Enforce Metcalfe: Toggle between the classic law (Beta=2) and a dynamic fit.
• Smoothing: A 30-day SMA is applied to active addresses to filter out daily "jitter."
Credits
• Robert Metcalfe: For the original law of network utility.
• Willy Woo & Greg Wheatley: For their pioneering work in applying Metcalfe's Law specifically to Bitcoin's valuation.
Important Data Requirement
To function, this indicator requires a data feed for Active Addresses. By default, it is set to GLASSNODE:BTC_ACTIVEADDRESSES. Please Note: On-chain data usually requires a premium vendor subscription on TradingView (e.g., Glassnode, IntoTheBlock, or CryptoQuant). If you do not have a subscription, the indicator will display a "Missing Data" warning.
⚠️ Note: This indicator is optimized for the Daily (1D) Timeframe. Please switch your chart to 1D for accurate signal reading.
Disclaimer
This script is for research and educational purposes only. It relies on third-party on-chain data. Fundamental valuation is only one piece of the puzzle; market dynamics can remain irrational longer than metrics can predict.
Tags
bitcoin, btc, on-chain, metcalfe, adoption, fundamental, valuation, active addresses, cycle, Rob Maths
Overview & Philosophy
The BTC – Metcalfe's Law (Deviation) is a fundamental valuation oscillator that answers one of the most important questions in network economics: "Is the current price justified by the number of active users?"Metcalfe's Law states that the value of a network is proportional to the square of the number of its connected users (Value = Users squared). In the context of Bitcoin, this means that as the number of active addresses grows linearly, the network's fair value should grow exponentially.This script identifies periods where Bitcoin’s market capitalization has become "overextended" or "undervalued" relative to its actual network activity.
Methodology
The indicator performs a rolling log-log regression (Ordinary Least Squares) between Bitcoin's Market Cap and its Active Address count over a 730-day (2-year) window.
1. The Regression:The script calculates the statistical relationship:ln(Market Cap) = alpha + beta * ln(Active Addresses)
2. Pure Metcalfe vs. Generalized Metcalfe:
• Pure Metcalfe (Beta=2): By default, the script enforces a slope of 2.0, adhering to the classic mathematical law.
• Dynamic Fit: Users can disable the "Enforce Metcalfe" setting to let the model find the best historical fit (often resulting in a Beta between 1.5 and 1.8).
3. The Deviation (The Signal):
The resulting line represents the Log-Deviation from Fair Value.
• A value of 0.0 means Bitcoin is priced exactly according to its network utility.
• Positive values indicate a "valuation premium".
• Negative values indicate a "valuation discount".
How to Read the Chart
🔴 The Red Zone (Overvaluation > 1.0)
Meaning: The Market Cap has outpaced the growth of active users. Historically, these peaks represent speculative bubbles or cycle tops where price is driven by hype rather than utility.
🟢 The Green Zone (Undervaluation < -0.25)
Meaning: The network is being utilized, but the price has crashed below its fundamental support. Historically, these "Utility Floors" have marked the most profitable accumulation zones in Bitcoin’s history.
🟠 The Orange Line (Fair Value Transition)
Meaning: The market is in a healthy growth phase, moving in lockstep with user adoption.
Strategy & Interpretation
This tool is a Macro Compass. It is designed to help investors stay objective during periods of extreme market emotion.
• In a Bull Market: Watch for the deviation to hit the Red Zone. This is your signal that the "Network Utility" can no longer support the price, and a major correction is likely imminent.
• In a Bear Market: Look for the "Green Floor." When the price stays below the -0.25 level despite stable user activity, it suggests a massive mismatch between value and price—a classic buy signal.
Settings
• Regression Window (Default: 730 Days): Chosen to capture mid-to-long term cycle trends. Adjust to shorter timeframes for more dynamic behavior or longer timeframes (like 1460 Days) to catch longer cycles.
• Enforce Metcalfe: Toggle between the classic law (Beta=2) and a dynamic fit.
• Smoothing: A 30-day SMA is applied to active addresses to filter out daily "jitter."
Credits
• Robert Metcalfe: For the original law of network utility.
• Willy Woo & Greg Wheatley: For their pioneering work in applying Metcalfe's Law specifically to Bitcoin's valuation.
Important Data Requirement
To function, this indicator requires a data feed for Active Addresses. By default, it is set to GLASSNODE:BTC_ACTIVEADDRESSES. Please Note: On-chain data usually requires a premium vendor subscription on TradingView (e.g., Glassnode, IntoTheBlock, or CryptoQuant). If you do not have a subscription, the indicator will display a "Missing Data" warning.
⚠️ Note: This indicator is optimized for the Daily (1D) Timeframe. Please switch your chart to 1D for accurate signal reading.
Disclaimer
This script is for research and educational purposes only. It relies on third-party on-chain data. Fundamental valuation is only one piece of the puzzle; market dynamics can remain irrational longer than metrics can predict.
Tags
bitcoin, btc, on-chain, metcalfe, adoption, fundamental, valuation, active addresses, cycle, Rob Maths
Skrip sumber terbuka
Dalam semangat TradingView sebenar, pencipta skrip ini telah menjadikannya sumber terbuka, jadi pedagang boleh menilai dan mengesahkan kefungsiannya. Terima kasih kepada penulis! Walaupuan anda boleh menggunakan secara percuma, ingat bahawa penerbitan semula kod ini tertakluk kepada Peraturan Dalaman.
Penafian
Maklumat dan penerbitan adalah tidak bertujuan, dan tidak membentuk, nasihat atau cadangan kewangan, pelaburan, dagangan atau jenis lain yang diberikan atau disahkan oleh TradingView. Baca lebih dalam Terma Penggunaan.
Skrip sumber terbuka
Dalam semangat TradingView sebenar, pencipta skrip ini telah menjadikannya sumber terbuka, jadi pedagang boleh menilai dan mengesahkan kefungsiannya. Terima kasih kepada penulis! Walaupuan anda boleh menggunakan secara percuma, ingat bahawa penerbitan semula kod ini tertakluk kepada Peraturan Dalaman.
Penafian
Maklumat dan penerbitan adalah tidak bertujuan, dan tidak membentuk, nasihat atau cadangan kewangan, pelaburan, dagangan atau jenis lain yang diberikan atau disahkan oleh TradingView. Baca lebih dalam Terma Penggunaan.