Bitcoin Stock-to-Flow Model: Is It Still Relevant? 🤔
Exploring the Controversial Forecast Model Predicting Bitcoin's Price at Over $400,000
The Bitcoin stock-to-flow (S2F) model has been one of the more controversial tools for forecasting Bitcoin's price. Currently, it suggests a fair valuation for Bitcoin of over $400,000 within the next year. This post delves into whether we should still trust this model or consider it broken.
What is the Bitcoin Stock-to-Flow Model?
The S2F model aims to provide a fair valuation for Bitcoin by comparing it to other hard assets like gold and silver. It calculates this value based on Bitcoin's stock (circulating supply) and flow (inflation rate). The model was initially derived by Plan B, and you can find more detailed analysis on Bitcoin Magazine Pro.
Current Model Predictions and Skepticism
At present, the S2F model predicts Bitcoin should be valued at around $80,000. However, many skeptics argue that the model may not be accurate, especially in the current cycle. Social media and other content creators have raised doubts, suggesting that while the model may have worked in the past, it might not be applicable now.
Historical Analysis
Looking at historical data, Bitcoin’s price has often deviated from the S2F model’s predictions. For example, during previous cycles, Bitcoin's price fell significantly below the model's fair value predictions but eventually recovered.
Impact of Bitcoin Halving
Bitcoin halving events, which occur approximately every four years, reduce the block rewards miners receive, impacting the stock-to-flow ratio. After each halving, there's typically a transition period before significant price increases occur.
Miner Revenue and Market Impact
Post-halving, miner revenue decreases, sometimes leading to miner capitulation where miners may shut down operations. This is a normal part of the cycle, and recovery usually happens as new miners join the network and prices adjust accordingly.
Future Price Predictions
The S2F model’s prediction of a $450,000 Bitcoin price in a year is debated. Even if the model isn't perfectly accurate, it still indicates potential for significant price increases based on fundamental supply and demand economics. Historical data suggests that even if Bitcoin's price doesn't reach the predicted $450,000, substantial increases are still likely.
Conclusion
Despite skepticism, the S2F model remains a useful tool for understanding potential price movements of Bitcoin. Until there is concrete evidence proving the model's inaccuracy, it remains a valuable resource for market analysis.
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Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice. Always do your own research before making any investment decisions.
I think the S2F model is not correct. The S2F model predicts an exponentially rising (average) price P = A exp(-bt), (t is the time after genesis). In reality the price rises according to a power model (P = A t^b).
Why is S2F exponential? Because the stock S is almost constant and the flow of new bitcoins F halves after each halving: F = C 2^(-n) (after the n-th halving cycle).