Is the Bitcoin Stock-to-Flow Model Doomed?

Stock to flow ratio Bitcoin. Source: Pixabay
Stock to flow ratio Bitcoin. Source: Pixabay

The PlanB deception? Bitcoin (BTC) failed to meet its target of $100,000 before the end of 2021. Should we abandon all hope of a 6-digit bitcoin while PlanB’s Stock-to-Flow, which produced this projection, appears to have been debunked?

Daniele Bernardi, CEO of asset management Diaman Partners, critiques bitcoin price estimates based on PlanB’s Stock-to-flow ratio in a Cointelegraph article published on January 2, 2022.

Bernardi specifically lists numerous aspects to support his theory that these projections are too optimistic.

One of these complaints is that the Stock-to-flow model does not take into consideration demand, which is at the very core of the appreciation of the price of any commodity, including gold, but just the scarcity of bitcoin, which is also one of the model’s very essential pillars.

Stock to flow ratio – Source: Buybitcoinworldwide

Bitcoin Price Forecast: Evolution of the Demand Curve for a Product in Its Cycle

A variety of things influence bitcoin demand. One of them is its rising scarcity, which has contributed to bitcoin’s standing as an inflation-hedging asset (a status that, let’s face it, is still primarily theoretical and can only be appraised with greater hindsight).

The regulation of cryptocurrencies, the pace of internet coverage, or the growth rate of bitcoin vending machines (ATM BTC) are all elements that can impact the demand for bitcoin and its price.

Bernardi sees a curve that tends to flatten with time to depict the evolution of bitcoin’s price, rather than a linear regression line. This curve similarly resembles the demand for a product over its life cycle. Demand for the product rises sharply during its first two phases – launch and growth – and then levels off as the product develops in terms of marketing.

So, with these assumptions, can Bitcoin hit $100,000? With current demand, the asset has already achieved an ATH near $70,000, and it will be accepted that this demand internationally is still far from the saturation point at the time.

Against all circumstances, some experts continue to believe in a $100,000 bitcoin, which has merely been delayed until 2022. A symbolic quantity projected by the Stock 2 Flow model, but which has now arrived too late.

What is the Bitcoin Stock to Flow ratio? Is it still relevant?

Despite criticism of its approach, the Stock-to-Flow model remains a useful tool for attempting to evaluate the worth of Bitcoin (BTC) as well as identifying trading opportunities. purchase. How may this signal be employed in trading, and what theoretical goals does it suggest for Bitcoin’s price?

PlanB, a former Dutch professional investor, wrote an essay titled ” Modeling Bitcoin Value with Scarcity ” in March 2019. The author wished to measure Bitcoin’s scarcity and value.

The Stock-to-Flow (S2F) model depicts the relationship between an asset’s stock and its yearly production. Gold, for example, has an S2F ranging from 58 to 62. (the highest of all metals). This indicates that it would take around 60 years of mining to achieve the existing gold supply.

According to the author, “the primary reason why gold has retained its monetary significance throughout human history is the low rate of accessible gold.” »

Aside from the author’s opinion, it is obvious that gold’s scarcity makes it a valuable and expensive commodity. Satoshi Nakamoto, the creator of bitcoin, made it the first scarce digital asset in history by choosing a restricted supply of bitcoins.

To investigate the value of bitcoin from the standpoint of scarcity, the author extended his Stock-to-Flow calculations by incorporating the many halvings and therefore the number of bitcoins mined through time.

Stock to Flow ratio & Scarcity. Source: Buybbitcoinworldwide

This model is particularly intriguing in that it indicates places where the price of bitcoin might be over or undervalued in comparison to its S2F. For example, the following bullish periods and corrections are plainly visible: 2011-2012, 2013-2014, and 2017-2018. You will see that it is tough to do better in terms of accuracy. This, however, did not happen overnight, and it took several months for this prophesy to become a reality.

Nonetheless, the S2F makes no predictions about the short-term price or volatility of bitcoin. This one, depending on a variety of reasons, maybe overpriced in comparison to the model, but it will continue to increase for several days or even weeks, and vice versa.

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Can the Stock to flow ratio still be trusted?

Several methodological flaws have been discovered after the PlanB article on Stock-to-Flow was released. Furthermore, statistical models that try to forecast the future by evaluating the past are rarely useful decision-making aids.

Finally, scarcity is not the sole factor influencing bitcoin’s value. Legislation, platform hacks, current events, public enthusiasm, and the advent of professional investors all influence its trajectory and volatility.

Despite this, the S2F model remains stable two years after the release of PlanB. Its inventor supplemented it with a second study, the Stock-to-Flow Cross Asset (S2FX), which corrected many statistical mistakes in the initial model. He finds a substantial association between the S2F and asset capitalization by comparing his work to gold and silver.

Stock to flow predictions gone wrong

Although the S2F model has been successful in the past, this is no longer the case. Indeed, he forecasted that the price of BTC on July 20 would be $88,531, which is three times its present price. PlanB correctly projected that BTC will reach $450,000 by the end of the year in the best-case scenario and $135,000 in the worst-case scenario by the end of the year.

On June 21, PlanB sponsored a Twitter poll. According to the findings of this study, 41% of respondents anticipated that BTC will remain below $100,000. Previously, in March, 16% predicted that BTC would price at $55,000 in June.

The S2F model anticipated that Bitcoin (BTC) will have a great month in July. PlanB has to confess that, based on the data and the current scenario, BTC prices are departing from the S2F trend, which makes it “a little concerned.” Several other financial specialists agree with this assessment. This is the case of Lennix Lai, the OKEx bitcoin exchange’s director of financial markets.

Conclusion

Because emotion is an investor’s biggest enemy, the classic dollar-cost averaging (DCA) strategy appears to be the most appropriate for investing in BTC over the long run in order to benefit from the many advantages that this method gives.

However, beyond BTC price forecasts, these two models are useful tools for any crypto-asset investor.

In addition to technical analysis, Glassnode’s “Stock-to-Flow Deflection” indication is handy for buying or selling on the go when the BTC price deviates too far from the S2F pattern. We’ll see whether the future validates this model.

Is Bitcoin still following stock-to-flow?

Plan B’s Bitcoin Stock-to-Flow model has been rendered invalid when the asset closes below $100,000 in 2021.

What is a high stock-to-flow ratio?

A high stock-to-flow ratio, such as 50 or above, indicates extreme relative scarcity, meaning that prices will rise as well. When an investor sees that ratio, he or she may decide to sell part of their bitcoin in order to profit from its present high price.

Can BTC still hit $100.000?

Bitcoin might reach $100,000 in 2022, according to experts.

Can Bitcoin crash to zero?

Bitcoin (BTC) plummeted below $30,000, to $26,597, after the TerraUSD (UST) stable coin crashed significantly below its $1 peg, adding to the entire market’s negative pressure. But don’t worry: the bitcoin market will not sink to zero, according to Fortune’s Sam Bankman-Fried.

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