Researcher breaks down Bitcoin’s stock-to-flow model and compares cryptocurrency with “Tech Stock”

A report reached from the research team of ByteTree aims “disassemble” one of the valuation models of Bitcoin (BTC) Acquaintance, the stock-to-flow model. The model offers a very optimistic forecast for Bitcoin and says that within a year we should see price levels above $ 100,000.

Source: Glass knot.

BytTree Co-Founder and Chief Investment Officer, Charlie Morris devotes the entire fourth chapter of the report to “dismantling”. Stock-to-flow models have been used for decades to predict the price of commodities like gold and silver. The “stock” is the existing supply of the asset and the “flow” is the new additional supply that is generated. Applied to Bitcoin, It depends on due to the fact that inflation or inflow will gradually decrease while the stock-to-inflow average will gradually increase. So, creates Predictions of “the sky is the limit” for the price.

Morris argues that The price of Bitcoin is not determined by the supply-side economy at all. In an economy, said Morris, the market adjusts on both sides: Supply and demand until the new equilibrium is reached. Since the supply of Bitcoin is fixed, it stays on the side of the demand equation to determine price, he concludes.

Researcher breaks down Bitcoin’s stock-to-flow model and compares cryptocurrency with “Tech Stock”
Researcher breaks down Bitcoin’s stock-to-flow model and compares cryptocurrency with “Tech Stock”

Morris believes another problem is with the model is that he overemphasizes freshly mined coins as if they were the only ones up for sale, “but anyone who has bitcoin can sell freely.” He also noted that the dynamics of the network have changed:

“When the network has a lot of supply and a relatively small flow, it is supply that matters. As flow decreases, it becomes less important in influencing market prices.”


In addition, the co-founder to suggests that The role of Bitcoin miners has diminished over time. as can be seen from the average decline between sales and market capitalization:

“Miners made up 50% of the market cap once a year. At the time they made a big impact on price, but not at 1.7%. Likewise, they made up 68% of the value of all deals, which fell to 3.9% are. “

He admits that miners continue to play an important role in maintaining the network. “but its economic footprint is shrinking.”

Morris made another criticism of the model, saying that the model It does not take into account the actual use and adoption of Bitcoin, which it believes is the intrinsic value of the network:

“I would say that Bitcoin is a powerful digital network that is thriving. It is some kind of technical action with no profit or CEO, but with great security, increasing diffusion and enforcement. There are many reasons why the price of Bitcoin is going up or down can. go down, but S2F (stock-to-flow) is not one of them. “

Source: Glass knot.

It is worth noting that In the months since Bitcoin was halved for the third time, the price has lagged behind the levels forecast by the model.

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