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Bitcoin Stock-to-Flow Model Goes Off Course?

Bitcoin Stock-to-Flow Model Goes Off Course?
  • Bitcoin Stock to Flow models show huge divergences from reality.
  • Nasdaq believes the huge difference means the S2F models are off course.
  • However, crypto analyst PlanB argues that the models are accurate.

Top crypto Bitcoin is confounding the market and technical indicators. Specifically, the Bitcoin Stock to Flow (S2F) Model is showing a wide divergence. This has led some analysts to say the model has gone off track.

Notably, crypto analyst PlanB compared the current indicator divergence to similar patterns in January 2019. PlanB has been tracking the Bitcoin S2F Model since March 2019. As such, the analyst is quite familiar with the model.

Also, the analyst noted the huge gap between current bitcoin prices and the S2F model. To clarify, Bitcoin closed June trading at $35,037. However, the S2F model is showing the top crypto should be trading at $77,900.

In the tweet, PlanB went on to predict that the “Next 6 months will be made or break for S2F (again).”

Based on the tweet, Nasdaq then wrote an analysis claiming the model is off course. However, PlanB responded to the article with another tweet. The tweet states that the S2F model is not off track. The analyst goes on to share that the S2F model is in fact “just touching lower bands (just like Jan 2019 and Mar 2020)”

Of note, S2F models predict price movements for natural resources like gold and silver. The resources generally serve as good stores of value over time as they are deflationary. Also, these goods are scarce and hard to produce. As such, such resources are often referred to as “hard money”. In comparison, fiat currencies like the dollar are “soft money”.

Thus, the S2F model measures stock at a moment of time relative to the commodity’s flow over time. As such, S2F models measure commodities based on per unit of time. Other factors to consider are the commodity’s level of elasticity of demand and available supply.

As previously stated, stores of value are generally valuable due to their limited supply. For this reason, Bitcoin serves as a good store of value. This is because the top crypto has a capped supply of 21 million coins. As a result, analysts predict that bitcoin demand will increase over time leading the crypto to rise in price.

In comparison, fiat currencies like the US dollar have an uncapped supply. In fact, the US government has minted $4 trillion new notes since the COVID-19 pandemic started. This inflationary behavior has made many people lose faith in fiat. For example, Mexican billionaire Ricardo Salinas Pliego called fiat currencies fraud as they erode value or time.

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Avid reader and writer with a passion for sharing crypto news and trends. Uses her background in finance to help readers better understand the crypto market and investments. Hopes to see mainstream crypto adoption in the near future, especially in Africa.