• The stock-to-flow (S2F) model’s value estimation for bitcoin currently puts its price at around $109,000, however, the current price is only at $16,700.
• Back in 2011, the S2F deflection was 30.76 meaning that it was trading at nearly 31 times the estimated price.
• The S2F model is a method of valuing commodities based on the relationship between their current supply and the rate at which more is produced, with a higher stock-to-flow ratio indicating a higher value.
Bitcoin’s current price is drastically lower than the stock-to-flow (S2F) model’s value estimation of around $109,000, with the cryptocurrency trading at only $16,700 as of press time. This discrepancy between the estimated price and the current price is the furthest the two have ever been apart, with blockchain analysis service Glassnode noting that bitcoin is worth only 15% of its S2F estimated current value. However, this is not the largest deflection between the two that Bitcoin has experienced.
Back in 2011 when Bitcoin was trading at $18.72, the S2F deflection was 30.76, meaning that it was trading at nearly 31 times the estimated price. This discrepancy between the two values was much larger than the current deflection and highlights the volatile nature of the cryptocurrency market.
The S2F model is a method of valuing commodities based on the relationship between their current supply and the rate at which more is produced. Those who believe in its application, in this case, suggest that bitcoin’s value is directly proportional to its scarcity, with a higher stock-to-flow ratio indicating a higher value. The model gained notoriety because it has been able to successfully predict the long-term price of bitcoin in the past with a notable degree of accuracy.
The S2F model’s predictions are shaped by the idea that as the stock of bitcoin increases and the flow of new bitcoin decreases — due to the halving of the issuance rate, which occurs roughly every four years — the value of bitcoin should increase. This is due to the fact that the decrease in the issuance rate creates a sense of scarcity and drives up the price of the cryptocurrency.
Despite the current deflection between the estimated and current price of Bitcoin, supporters of the S2F model remain confident that the model will hold true in the future. However, with Bitcoin continuing to remain volatile, it remains to be seen if the model will be able to accurately predict its future price.