Version 2.0 - Bitcoin's Stock-to-Flow Model Has Just Changed
bitcoin crypto cryptocurrency news model s2f stock to flow planb analysis

Version 2.0 - Bitcoin's Stock-to-Flow Model Has Just Changed

By ZackNorman97 | Finance Blog | 23 Jan 2020


There's a saying, that the only thing certain in life, is death and taxes. While commonly associated with Benjamin Franklin, it was first quoted some half a century earlier, by English merchant, writer, and journalist, Daniel Dafoe. Mr. Dafoe was an interesting persona, and he was credited to having helped popularised English literature.

He was versatile, having produced more than 300 works of writing throughout his life, while also pioneering the art of modern journalism. Truly, life can be full of surprises, and when it throws lemons at you, the best thing to do, is to make lemonade. However, when Mr. Dafoe made that quotation, the concept of cryptographically secured, and decentralised forms of monetary instruments, hadn't yet existed.

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Credits to: GIPHY


As definite as death, and taxes.

If one is patient and rational enough, Bitcoin, and the way it moves in the market, can be just as certain. Surely Bitcoin, just like most cryptocurrencies, are very volatile in the shorter time spans. However, when you scale out, and look at the bigger picture, it becomes fairly easy to determine where it's going to go within the next few weeks, months, and years.

Though just as how vampirism and offshore accounts throw a wrench into certainty, Bitcoin's value can sometimes stray from target every once in a while. Perhaps the most accurate, publicly available projection for Bitcoin's price, is the Stock-to-Flow model, created by analyst, PlanB, while separate variations have spawned since.

nFYqWNZv-ezgif.com-resize1.png EBQ30lIl-ezgif.com-resize.png From PlanB's original article describing Stock-to-Flow. Credits to: Medium

"Modelling Bitcoin's Value With Scarcity " - that was the title for PlanB's Medium post, first pitching the idea for the original model. Stock-to-Flow, or S2F, is perhaps the most popular reference material for predicting Bitcoin's future price moves, and it works well if you're looking at the longer time span. The general idea of S2F, is to value Bitcoin based on the scarcity of its supply.

Whether you agree with it, or not, the Stock-to-Flow model has been rather accurate thus far, with a strong correlation between its projections, and the actual price for Bitcoin. In fact, I proved this myself in a recent article, where I valued Bitcoin to reach a price of $144,000 by end-March 2022, and coincidentally or not, it proved to be scarily close to the S2F projections.

Yk52AK58-X37EMQ9WSwsLaUVnWj5v4rfuehQsoVtukrb5zwdXbo5aA1Ad39Ag3xeAuevNT2KNT4vDdgRBCpJit1WRvhDsXnVrWejAdRbFGgYk6.pngAwiAKcUg-X37EMQ9WSwsLaUVnWj5v4rfuehQsoVtukrb5zwdXbo5aA1Ad39Ag3xeAuevNT2KNT4vDdgRBCpJiuRSYqv2BaEGndxhDJFFxuStn2.pngMy very own projections on where Bitcoin will go post-Halving 2020. Credits to: How high can we go - Can Bitcoin get to $100,000?

What's been changed?

To answer that, we need to remember that Bitcoin follows a deflationary economic model, where it has been pre-programmed to have a limited supply. Thus, with a fixed supply, and with the hope of steadily increasing demand, Bitcoin's price would soon rise as a result.

There will only ever be 21,000,000 Bitcoins which are destined to exist in this world. Each single Bitcoin counts, and it presents a large responsibility to every Bitcoin owner, especially if you hold the keys to 1,000,000 of them.

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Credits to: GIPHY

That is precisely the reason why the S2F model has been updated. It has been known, that Bitcoin's creator is shrouded in mystery, and many have made claims to that title. The true creator, going by the pseudonym of Satoshi Nakamoto, had the keys to 1 million Bitcoins, and no one knows where he is.

It has been suspected, that Satoshi Nakamoto may have passed away from this world, and with it, he took the keys to roughly 1,000,000 Bitcoins to the grave, possibly never to be seen again. Now, taking into account of those lost Bitcoins, there may only ever be 20,000,000 Bitcoins in total circulation.

ohyj9BoW-B69zEhWZA8UBvwpPuizsrYUTc5ojP7QkMFn5g3XLtenLte7cSSDxu9xqMUAABCWrodPXZSkRJ8Vq1snMWiSEJzPQSbXxQAfC6SgWE782.pngIlqG934m-Screenshot_2020-01-2320LookIntoBitcoin20Stock-to-Flow20Model.pngA comparison - Above is the old version, courtesy of my post, while below is the updated version. Except for the added model variance, notice any difference? Credits to: lookintobitcoin

Since the Stock-to-Flow model values Bitcoin based on scarcity, it has just been updated accordingly with the notion that Bitcoin's total supply will be pegged at 20,000,000. This now makes Bitcoin more scarce as a result, and its valuation is adjust higher.


Final Words.

By looking at the comparison above, it's hard to tell if the S2F model has really changed at all, even when 1,000,000 Bitcoins have been removed from the equation for good. At the time of writing, 18,177,150 Bitcoin have been mined, which puts us ever closer to that magical end goal of 21,000,000 as it had been originally programmed.

No doubt, it will be an interesting moment when we get to see the final Bitcoin be mined, and I expect there to be a friendly competition to see who can get to it first. Once that final Bitcoin is hashed, the world will fall into silence once more, as mining rigs shut down, and a single tear will be shed.


Have you traded or invested into Bitcoin, with sole reliance for the Stock-to-Flow projection? Let me know in the comments.

Thanks for reading! If you're keen on indulging more in the world of finance, tech, and cars - follow along ZackNorman97 for more, coming soon :-)


ZackNorman97
ZackNorman97

There's two sides to a coin. I'm a Writer, Blogger, and Thinker.


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