Bitcoin Stock to Flow

Bitcoin Stock to Flow Model Says Bitcoin Goes to $100K Soon or Goes Bust

According to Twitter cryptocurrency market analyst PlanB, Bitcoin is about to become bullish, with a likely to rise to a new all-time high of $100,000 on the cards. The Bitcoin stock to flow model that PlanB is using, also says that this might occur as early as Christmas 2021.

Sadly, PlanB’s analysis does come with one caveat. According to PlanB, if Bitcoin breaks their BTC stock to flow model all bets for the future of BTC are off.

Bitcoin Stock to Flow Explained

When Bitcoin first launched in 2009, it immediately became recognized as the world’s first non-easily reproducible digital asset.

A New Bitcoin coin can’t simply be brought into existence by typing a few lines of code. It is not possible to copy even so much as a single Satoshi. Neither is it possible to mint any amount of Bitcoin without devoting considerable computational resources to do so.

First and foremost, Satoshi Nakamoto made Bitcoin this way to guarantee the security of Bitcoin payments. However, the design of Bitcoin also emulates the stock to flow model of real-world assets like precious metals.

What is Stock to Flow?

In mainstream finance stock to flow ratios determine the value of commodities, by measuring the existing inventory of commodities against the amount of time it takes to bring new inventory to market.

In the case of gold, there are approximately 190,000 tonnes of physical gold in circulation and held in reserves. However each year, miners worldwide only produce 2,900 tonnes of the precious metal.

Given the current production capacity of gold miners, it would take approximately 66-years to replenish existing gold supplies if these were to suddenly vanish. This gives gold a stock to flow ratio of 66 accordingly.

What is the Existing BTC Stock to Flow Ratio?

At the beginning of 2020, Bitcoin had a stock to flow ratio of 27. As a result, up until May 2020, it would have taken 27-years for BTC miners to replenish the existing Bitcoin supply from scratch. However, in May, the number of Bitcoin that it is possible to produce each day was cut by 50%.

At the time of writing, the BTC stock to flow ratio is 58.7. This is close to the existing stock to flow ratio of gold. It is also the case, that the Bitcoin supply will be cut by 50% in another 4-years time. This will double the current Bitcoin stock to flow ratio, as the scarcity of new Bitcoin doubles.

The Higher the Stock to Flow Ratio, The Higher the Bitcoin Price

The higher the stock to flow ratio of a commodity is, the higher commodity prices are. In theory, this means that Bitcoin should accumulate in value as it Bitcoin increases in scarcity. Moreover, this is premise is what underpins the BTC stock to flow model that PlanB is using to predict a Bitcoin price of $100,000 by Christmas 2021.

Is it Certain that Bitcoin Will Hit $100,000 by 2021?

PlanB’s Bitcoin stock to flow model forecasts what the Bitcoin price should be by 2021 if Bitcoin continues to behave like a traditional asset class like gold or silver. However, no one can guarantee that this will be the case.

Everything from governments legislating against Bitcoin to a security breach of the Bitcoin blockchain could undermine the perceptive value of the digital currency. Thankfully, the risk of either of these scenarios unfolding is negligible. This being the case, all investors can do for now is keep on hodliing, in the hope that PlanB’s stock to flow forecasts really do prove accurate.

This is not financial advice. Nor is it meant to be advice of any sort. This is an article researched and opinionated by the author


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