Bitcoin Stock-to-Flow Model For Dummies

What actually is the Plan B’s Bitcoin Stock-to-Flow Chart?

Bitcoin is the first digital thing that cannot be copied, replicated, stolen, or forged in any way. This makes it unique in the digital world. Those are the major characteristics that contribute to its one-of-a-kind worth. Bitcoin is digitally rare, and within its workings is a mathematical mechanism that should cause Bitcoin’s value to continue to climb as time goes on. Mined bitcoins are organised into groups known as “blocks.” A block is a piece of information that is 1 megabyte in size and contains a description of all of the transactions that take place during a certain time period. Approximately every ten minutes, a new block will be generated. Since the very beginning, the Bitcoin network has, without fail, been producing new blocks at regular intervals.

What is the Stock-to-flow model:

Stock to flow (S2F) is a prominent Bitcoin pricing model. The plan, which was developed by a Twitter user and an anonymous Dutch investor, Plan B, is predicated on the notion that Bitcoin’s scarcity will drive up its price.

Since more than two years ago, this model has been regarded as one of the most prominent quantitative appraisals for BTC. It is founded on the concept that a currency’s value increases as its scarcity decreases. It compares the price of Bitcoin to that of other rare conventional assets, such as gold and silver.

With a finite supply of 21 million coins, no new coins will be added to the market, although the number of crypto traders will continue to rise. The more scarce a token gets as a result of growing demand, the higher its price will rise. Therefore, when Bitcoin’s stock-to-flow (S2F) ratio increases, so does the price.

Until now, the pricing model’s Bitcoin price forecasts have been somewhat optimistic. To maintain the model’s validity, all of these predictions must be met. By the end of 2021, Bitcoin’s price should reach at least $100,000, according to the model. In addition, it forecasts that the price of Bitcoin would reach $1 million by July 2025.

Plan B’s S2F struggles to achieve its target:

Since its introduction in 2019, the S2F model has been the subject of several short- and long-term price forecasts. It has also had to revise some of the prices due to the dynamic nature of the cryptocurrency industry.

At its peak, the model forecasted that Bitcoin will sell for $30,000 in May 2021, $90,000 in September 2021, and $100,000 in January 2022. Even while the model accurately predicted the token’s price in May, when it was selling for about $35k, it was wildly wrong in September, when it was trading for $41k.Bitcoin’s price reaching $100,000 by the end of the year seems improbable based on all available evidence. Despite the fact that the market might change at any time, there is currently no market element that is anticipated to significantly affect the market.

In the event that the token fails to reach these values, the S2F model will be invalidated. Up until this point, the model’s creator feels it is still on track and relevant.

Final Words:

The S2F model is a basic, longer-term model that promises to price Bitcoin based on its scarcity. Plan B has strengthened his model by demonstrating that the S2FX model and power law are consistent with his main model. However, one must also be mindful that market unpredictability has been demonstrated over a longer period of time. Regarding the viability of S2F, therefore, only time will tell if it is effective.