The quantitative analyst PlanB is still convinced of its stock-to-flow model. PlanB has become one of the most popular crypto market analysts in the past few months. Thanks are due to the stock-to-flow (S2F) model that he developed and announced in 2019.
In the podcast “What Bitcoin Did” PlanB has once again underpinned its views on the Bitcoin course.
The “stock-to-flow” is a number that indicates how many years it will take at the current production rate to reach current stock. The higher this number, the higher the price or value of the asset.
And how does all of this affect the BTC price?
In the S2F model, Bitcoin is equated with commodities such as gold, silver and platinum. These are known as “store of value” because, due to their relative “scarcity”, they retain their value over long periods of time. It is difficult to significantly increase their supply – finding and mining gold is expensive and time consuming.
The situation is similar with Bitcoin, because this asset is also rare. There are only a limited number of coins and it costs a lot of electricity and computing power to mine outstanding BTC – so the supply rate is consistently low.
In the accompanying diagram you can see that the BTC price has always followed the stock-to-flow over time. The theory therefore suggests that the development of the price can be forecast using the projected stock-to-flow line. This can be calculated if you know the approximate schedule for the future halvings.
Halving is an event in which the mining reward is cut in half – miners receive 50 percent less Bitcoin for verifying transactions.
Halving increases the stock to flow value as the production rate (flow) is halved. Assuming a constant or increasing supply (stocks), the stock-to-flow value must increase, since the flow, which is in the quotient, becomes lower. Theoretically, the price should rise – this has already been proven true in the history of Bitcoin.
According to PlanB, Bitcoin should reach a six-digit price by the end of 2021
“I never had any doubts. I still believe Bitcoin will be at least $ 100k by the end of the year. “
PlanB is confident about the price increase of Bitcoin. In his opinion, the crypto currency has already shown in the past which price jumps are possible – a decline to 20 thousand USD, as many members of the crypto community are demanding, he no longer sees.
PlanB also says that it is very easy to determine when the S2F model will expire. Why? Because it is a model based on linear regression. Here, the relationship between two variables is determined by applying a linear equation to the data.
“The S2F model says that we should go up with the S2F ratio that has increased since halving. So in a sense we are waiting for that. But if it stays down – for example, if we stay at $ 30,000, $ 40,000 for a couple of years, a couple of months – then it’s obvious that this linear regression line doesn’t fit the data anymore. It’s easy to see when it’s expired. And people can do that themselves. “
According to PlanB’s stock-to-flow model, the Bitcoin rate is expected to reach USD 100,000 in 2021 – a price of USD 1 million is even predicted for 2025. It is not surprising that these high price targets have caused a stir in the crypto community. So far, the model has had an accuracy of around 95 percent, but that does not mean that it will remain valid in the future – so there is no guarantee that the forecast will come true. It remains to be seen how the demand for BTC will develop – because this is largely responsible for the price development of Bitcoin.
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