According to one of the most widely used models for predicting bitcoin prices, Stock-to-Flow, the first cryptocurrency is now trading at more than half its estimated value.
The Stock-to-Flow model, the ratio of stocks to growth, is usually applied to natural resources such as gold and silver. It allows measuring the sufficiency of a certain resource in the world. For example, S2F model applied to gold is the amount of precious metal stored in reserves, divided by the amount of its annual production. The higher the Stock-to-Flow ratio, the fewer new deliveries to the market are made in relation to the total supply.
The S2F model is now showing the largest divergence from the real value of bitcoin since January 2019. This was noticed by the crypto analyst PlanB, who tweeted that the BTC/USD rate is now the farthest from the estimated value in more than two years.
According to the model, the price of bitcoin should now be around $77,900, while in reality, its current value fluctuates around $34,000.
Frequently referred to as “digital gold”, bitcoin is considered a scarce commodity under the stock-to-flow model because it is expensive, difficult to produce, and has a limited supply. Applying the S2F model to bitcoin is almost entirely dependent on the notion that the BTC shortage will determine its value.
Based on a stock allocation model, cryptocurrency hedge fund Pantera Capital announced in April 2020 that bitcoin should hit $115,000 by August 2021. Despite the recent pullback in the market, Pantera and other bulls argue that the market still has room to grow and, judging by the renewed flow of institutional funds, their words are not unfounded.
According to CoinShares data, the inflow of crypto investment instruments resumed growth after four weeks of continuous outflows. Investors poured $63 million into crypto products last week. The main inflow was directed to the investment company Grayscale and Purpose Bitcoin in Canada.
According to PlanB, the next six months will "make or break" the S2F model. PlanB wrote a blog post in April 2020 that the price of BTC could reach $288,000 in 2024, citing the S2F model.