Santiago Roel Santos, founder and CEO of crypto investment firm Inversion Capital, argued that cryptocurrencies are overvalued because they do not exhibit genuine network effects. In a recent Substack post, Santos stated that “crypto is priced for network effects it doesn’t have” and suggested that applying Metcalfe’s Law to blockchain assets “doesn’t justify crypto’s valuation” but rather highlights its weaknesses.
He argued that many network effects in crypto are adverse, citing congestion, higher fees, slower transactions, and degraded user experiences as examples. “Facebook didn’t get worse when it added 10 million users,” Santos said, highlighting the difference between traditional consumer platforms and blockchain networks.
Counterarguments from industry experts
Other experts, however, dispute Santos’ conclusions. Jasper De Maere, desk strategist at crypto market maker Wintermute, said applying consumer-app logic to layer 1 blockchains is flawed. He explained that users typically do not interact directly with L1s, and that network effects for L1s occur at the validator, security, and liquidity levels, where value compounds more meaningfully.
Tomas Fanta of Heartcore emphasized that fees on high-performance blockchains do not worsen as usage grows, and liquidity and yields tend to increase with adoption. Ben Harvey from Keyrock agreed that some L1s may be overvalued but noted that factors such as protocol scalability and integration with artificial intelligence play a significant role in value.
Martin Kupka, a former investor at RockawayX, added that network effects are most visible in stablecoins, centralized exchanges, and perpetual futures decentralized exchanges. “The more useful a crypto asset is as a medium of exchange and collateral, the deeper the liquidity and better the execution,” Kupka said.
Challenges in valuing crypto networks
Santos presented rough estimates for the value per on-chain user, calculating that the total crypto market cap (excluding Bitcoin) of $1.26 trillion implies $18,000–$31,500 per monthly active user. By comparison, Facebook’s per-user value is roughly $516. Experts note that crypto’s modular Web3 architecture separates layers such as L1 security, stablecoins, exchanges, and applications making network effects less obvious but often more potent when analyzed correctly.
De Maere concluded that while traditional metrics like average revenue per user may suggest overvaluation, crypto’s network effects are better understood through security, liquidity, and modular adoption patterns. He compared the current situation to early Web2 valuation challenges, where specialized models were developed to assess platform value accurately.