Cryptocurrency
Stock to Flow Model Predicts $55k Bitcoin by 2021
Stock to Flow Models Scarcity of an Asset. Scarcity can be measured by SF. SF=stock/flow Stock measures the existing stockpile of an asset. In Bitcoin’s case, this would be the 18.1 million coins in circulation. Flow refers to the amount of yearly production. Commodity markets calculate stock to flow in a chart below courtesy of […]
Stock to Flow Models Scarcity of an Asset.
Scarcity can be measured by SF.
SF=stock/flow
Stock measures the existing stockpile of an asset. In Bitcoin’s case, this would be the 18.1 million coins in circulation. Flow refers to the amount of yearly production. Commodity markets calculate stock to flow in a chart below courtesy of Plan B’s Medium article.
Gold has a SF of 62, therefore, it will take 62 years of consistent production to reach the current stockpile. Silver has a SF of 22 which is very close to Bitcoin’s current SF of 25. In 2020, Bitcoin inflation schedule will be cut in half and will double its SF to 50, making it one of the most scarce resources on the planet.
A linear regression created by analyst, Plan B, concluded that 95% of Bitcoin’s market value is driven by SF and scarcity. The other 5% consists of outlier events including news and regulation. Assuming demand remains constant and there are no technical errors, the SF model predicts Bitcoin will reach a market value of $1 trillion by the end of 2020-2021, or $55,000 per coin.
Plan B’s Projection
As you can see on the chart above, Bitcoin’s stock to flow model projects a price of roughly $55k by the end of 2020. The model is based on a power law. A power law defines the relationship between two complex systems. For instance, each time Bitcoin undergoes a halvening (every 4 years), stock to flow doubles and market value increases 10x. This has occurred multiple times at different price points (roughly $10, $1000, $10,000) with consistent -80% drops. The fact that this has occurred on multiple occasions gives us even more confidence in the model.
Conclusion
Overall, Plan B’s stock to flow model looks too good to be true. While traders are focusing on daily price fluctuations, as investors it is easy to see where Bitcoin is going from a mile away. Furthermore, we are very bullish and excited to see how Bitcoin performs in 2020 & 2021.