Backtesting Bitcoin’s Stock-to-Flow Model Confirms 2020 Rally
The end of the year is usually a good time to review some price predictions for bitcoin. One model that has grown in popularity this year has been stock to flow and further research indicates that BTC price patterns are accurate.
Bitcoin S2F In Depth
The model was originally proposed by market analyst ‘PlanB’ who modeled bitcoin price through scarcity earlier this year.
ICYMI: the original stock-to-flow article, with underlying theory and hypothesis, and description of the S2F model.https://t.co/n5P5uMCKHT
— PlanB [Jan/3➞🔑 ] (@100trillionUSD) December 22, 2019
Stock to Flow has been described as a ration of the amount of a commodity held in inventories, or current circulation divided by the amount produced annually. It has been increasingly used for BTC price predictions as the halving in May will cut the supply and inflation in half which doubles the S2F ratio.
Dutch Linux administrator Rob Wolfram has expanded on the research delving deeper into stock to flow and future movements of bitcoin price.
The researcher noted that values of extrapolation into the future of today are likely different from next month’s values so testing older values may be more accurate.
The previous two halving events in 2012 and 2016 caused a steep increase in stock to flow ratio in the year that followed. Wolfram has taken these two data subsets to predict a future one rather than using current data.
A comparison of logarithmic values has been overlaid onto the historical bitcoin price chart to anticipate future movements and the charts line up remarkably well. He also extracted the million or so ‘ghost coins’ ostensibly held by Satoshi himself.
Bitcoin price predictions are largely on track with those suggested by ‘PlanB’ in his original analysts back in May.
“It seems that the periods when the stock to flow ratio is rising significantly give the best prediction of the future value. I look forward to seeing the effect of the next halving event in May 2020.”
Is It All Nonsense?
The model has recently been disputed by the executive editor of news for Bloomberg Digital, Joe Weisenthal, who labeled it as nonsense in a recent controversial tweet.
Ok, since nothing's going on today, I'm going to do a quick thread on why the concept of using Stock-to-flow analysis (or any other future supply based model) is complete nonsense for anticipating the future value of Bitcoin 1/
— Joe Weisenthal (@TheStalwart) December 23, 2019
His theory was that bitcoin supply is not a driving factor for the value of the asset. People’s preference to hold it as part of the global market portfolio which includes real estate and precious metals will affect its prices.
At the moment bitcoin is holding above $7,000 which places it directly where it should be on all stock to flow charts. Halving FOMO next year could well initiate a larger rally which would confirm the model’s accuracy.
Is bitcoin’s stock to flow a good measure of the future price? Add your comments below.
Images via Bitcoinist Media Library, Twitter: @100trillionUSD, @TheStalwart