This quantitative model that gives hope for the future of Bitcoin

By: Bharggavi Ssayee

This quantitative model that gives hope for the future of Bitcoin

May 24, 2021 1:17 PM

Bitcoin continues to fall on the stock market despite a slight recovery last Friday. After Tesla, the Bank of China and the fear of the US Treasury, the price of Bitcoin has really suffered from the decision of these important players.


Indeed, considering the April 14 peak at $ 64,869 and the crash-period floor price of $ 32,002, the crypto fell 50.66% in the markets. Will Bitcoin have the capacity to resurface and confirm its status as a safe haven against inflation?


In fact, the scarcity-based stock-to-flow (S2F) model shows that Bitcoin may well rise on the stock market in the years to come. We noticed that the stock-to-flow ratio of Bitcoin has continued to evolve since 2019 when the first simulation was carried out with the model by Plan B. According to forecasts, its ratio could exceed that of gold; which will undoubtedly make Bitcoin the rarest asset in the world.


Focus on this quantitative model that gives hope for the future of Bitcoin!


What about the Stock to flow model?

For active cryptos, it has always been difficult to measure their real value in order to make a forecast of their price in the long term. For Bitcoin, it is even more difficult because we do not see practical applications of its blockchain. Given these realities, analysts generally use price history or movements in supply or demand to determine the possible value of Bitcoin in the long term. Investors more into fundamental analysis will look at central bank monetary policy stance and inflation to see if the digital asset will be a "hedge."


Faced with these difficulties, a financial analyst by the pseudonym of Plan B invented the quantitative stock to flow (S2F) model in an attempt to make a more or less precise forecast on the price of Bitcoin. The model tries to estimate the price of Bitcoin from two variables: the ratio of bitcoins mined per year and the total amount of bitcoin in circulation. The model's finding: the less an asset is extracted during a year, the greater its value.


Plan B simulated this model on the other assets we call precious metals. He found that gold was the asset with the largest stock to flow ratio (62) with annual supply growth of 1.6% in 2019. After that, we have diamond with an S2F score of 22 and annual metal growth of 4.5%. In 2019, Bitcoin's S2F was 25 for 17.5 million tokens compared to 700,000 coins produced per year.

Compared to this year, the S2F (54) of gold and diamond (19) fell while that of Bitcoin rose 31.6 more. Currently, the S2F stands at 56.6 which is explained by the 18.6 million Bitcoin that exists out of 328,500 Bitcoins that have been mined so far for this year. If you look at the graph closely, in the years to come, Bitcoin will far outperform gold as the most valuable asset in the world.

Scarcity: Bitcoin's strong case for the future

In economics, we all know that the rarer a product becomes, the more its value on the market. Bitcoin is in the process of reaching maximum supply, which will make Bitcoin the world's rarest digital asset. So, those who wish to acquire the cryptocurrency in the near future, must pay for its scarcity.


Two experts by the name of Ruggero Bertelli and Daniele Bernardi wrote an article on cointelegraph entitled “Forecasting Bitcoin price using quantitative models, Part 1”. They showed from the Power Law of Bitcoin's scarcity that its market capitalization can reach $ 20 trillion, once the amount of Bitcoin mined over a year does not exceed 1%. Which is very possible for experts by 2024.

This question divides on social networks. While some believe in liquidating all crypto positions. Others believe this is the perfect opportunity to buy with cryptocurrency rising over the long term. We can see that from the data presented in this image, after periods of strong growth, Bitcoin has always undergone very severe corrections.


The interesting thing is that he always got up afterwards. Ceteris Paribus, if the same market causes should lead to the same results, BTC should jump to higher highs than that of $ 64,869.


Ultimately, this is not a financial advise and Coinnewsafrica willnot be held for any lose buying the downside or selling their tokens depends on the investor and their investment goals.