If you’re getting fed up with all the forecasts of the bitcoin price, well, get used to it, because I’m planning to write a couple more before we go into 2020.
The digital asset has experienced a halving event every four years since the development of Bitcoin (BTC) in 2009, reducing the number of coins continuously entering the economy by half, rendering it a deflationary asset.
Based on its hard-coded scarcity, Bitcoin has risen dramatically in value over the years, giving the commodity a high stock-to-flow ratio. Historically, Bitcoin has measured band rates below its median before half years while graphically illustrated with variance bands.
PlanB’s proposed stock-to-flow (SF) formula has become widely accepted as an accurate model for forecasting Bitcoin’s price given the strong correlation that continues to this day. We have discussed this model many times before
The stock-to-flow method, using gold as an example, discusses the shortage of the metal as it aligns with its production and the amount of new gold made available annually, the article noted.
PlanB used this data to map a Bitcoin graph showing its stock-to-flow ratio and presenting Bitcoin’s case for hitting a $55,000 price tag after halving its 2020.
Bitcoin data stock-to-flow variance
According to the value of Bitcoin — illustrated as the red line on the map — the price of BTC during bullish periods has achieved comparatively higher separation than the times it fell below its average throughout bearish periods. Bitcoin’s median line has also been observed, leading to higher prices in tandem with half cases.
Bitcoin followed the median upward trend after its halves in 2012 and 2016, then rode the trend largely below the median line until the major bull run spikes pushed their price high above the median.
Furthermore, Bitcoin tends to have suffered declines in the bear market before the 2012 and 2016 halvings, spending time close to the bottom of the dark blue variance group.
A similar bear market era near the bottom of the dark blue divergence also occurred after 2018, but it seems to have occurred comparatively earlier than the other two bearish pre-half years.
Stock-to-flow is cool, but the demand for bitcoin is essential
While the SF model of PlanB was easy and sweet, it does not automatically mean that the price of Bitcoin will continue to follow its trend. Instead, a lot depends on the cryptocurrency’s demand and rate.
For those unfamiliar, an asset’s SF ratio is calculated by dividing the current supply by that asset’s number of new units produced in a given period. Bitcoin SF is divided by the number of new coins per day. Usually, the indicator is used for commodities to show an asset’s scarcity or abundance. Gold, for instance, is the commodity with the highest SF ratio, indicating its scarcity and difficulty in production.
If Bitcoin were to follow the SF-based trend, over the next few years it could grow to as high as $100,000.
They should not, however, have high expectations based solely on the SF model
To hit a market cap of trillions of dollars for Bitcoin, it must first undergo mass adoption.
Bitcoin Price is linked directly to network activity
The network value of Bitcoin, measured in USD market cap, has a high correlation with the network activity level, reflected in the cost of the dollar transaction (TV$).
Therefore, the prices are driven by the Bitcoin operation.
We can get even more interesting insights from the NVT (Network Value to Transactions) ratio of Bitcoin, which is close to the stock market PE ratio. The NVT ratio is calculated by dividing the Network Value (market cap) by the amount of daily or weekly USD transmitted through the blockchain of Bitcoin. The current NVT is 9 weeks, according to ByteTree info. This is because the current TV$ figure is $14 billion a week and we get 9 weeks when we split the total market cap (adjusted to exclude unspent coins) by reading the new TV$. The historical average of Bitcoin NVT is about 7 days.
Any reading of NVT over 12 weeks shows a high value that is usually caused by speculators. Large valuations are not long lasting. For example, with an NVT figure higher than that, Bitcoin was only 7 percent of the time.
According to the SF model, the next half scheduled for the first half of 2020 is expected to at least double the price of BTC. It will also mean, however, that the NVT figure will rise to 18 weeks from 9 weeks. The concern is that with its NVT over 18, BTC saw only 16 days. Greater network activity should therefore be regarded by Bitcoin as a necessary requirement to double or triple the cost.
Would you think the prediction model for Bitcoin SF is accurate? Share your thoughts in the section on posts!