Debate erupts over crypto’s network effects as investors question L1 value

Santiago Roel Santos argues that crypto lacks true network effects and is overpriced as a result, but other experts counter that L1 network effects are present.

Santiago Roel Santos, founder and CEO of crypto investment company Inversion Capital, said cryptocurrencies are not subject to positive network effects, but other experts disagree.

In a recent Substack post, Santos wrote that “crypto is priced for network effects it doesn’t have.” He also pointed to the network effect valuation system, Metcalfe’s Law, saying that it “doesn’t justify crypto’s valuation” and instead “exposes it.”

Santos claimed that many of crypto’s network effects are adverse, due to congestion, such as higher fees, a worse user experience, and slower transactions. “Facebook didn’t get worse when it added 10 million users,“ he said.

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