Using stock-to-flow for crypto valuation

By Incent | Incent Loyalty | 21 Oct 2019

German bank BayernLB recently published a report suggesting that bitcoin prices of $90,000 were possible after the May 2020 halving event, based on BTC’s Stock-to-flow ratio. Can the same model be applied to other cryptos like Incent?

Cryptocurrencies are notoriously hard to value. While there’s no shortage of technical analysis and charts full of coloured lines, cryptocurrencies like Bitcoin don’t pay dividends or have ‘fundamentals’ like stocks do. 

Analysts have started using on-chain metrics like active addresses, NVT and Realised Cap to gain a better sense of the health of the network, and whether Bitcoin is under- or over-valued. More recently, Stock-to-flow (STF) has started gaining traction as a valuation tool.

Digital gold

Stock-to-flow is the ratio of the amount of a commodity already in existence to the amount that comes into existence each year. Gold has a stock-to-flow ratio of around 58, while silver’s is far lower – more silver is mined and refined every year compared to the total amount already above ground. 

Bitcoin, with its algorithmic approach to issuance, has STF of about 26. But after the next halving in May 2020, its STF will be around 53 – similar to gold. Historically, bitcoin’s price has correlated very well with STF.

A recent report by German bank BayernLB draws on research by the anonymous Twitter user PlanB to suggest that the next halving could drive bitcoin prices up to $90,000, since bitcoin is an ‘ultra-hard type of money’. While this is an exciting prospect for the crypto world, its accuracy can only be gauged in hindsight – we’ll have to wait until we get there to know how reliable the model was. In the meantime, can it tell us anything about other crypto asset valuations, including Incent?

STF and other cryptos

The short answer is that Bitcoin appears to be a special case, for various reasons. Other cryptos simply don’t display the same relationship between price and STF. Even Litecoin does not show much correlation, and its recent halving had little effect on price.

Moreover, many cryptos do not have halvings at all; Incent, for example, has fixed supply of around 46 million. In terms of stock-to-flow, this makes it infinitely ‘hard’ – but that has next to nothing to do with its valuation.

Scarcity plus demand

Incent’s value is derived partly from its scarcity. We chose a static model because we wanted something completely different from the fiat-style points of the conventional loyalty. These are issued into existence as IOUs and can be redeemed according to conditions unilaterally set by the retailer. The issuer can devalue them at will – and this frequently happens in practice.

Given that scarcity, the key factor is net demand from retailers and customers. External demand poured into a digital asset of limited supply is a recipe for success.

While bitcoin’s demand comes primarily from its widespread reputation as a store of value – digital gold – Incent’s will come more from activity in the wider economy. Every transaction made by users, and every purchase supported by retailer deals, will drive value into Incent. Viewed this way, Incent’s value will be a result of our community’s spending. Accruing digital value will simply be a by-product of them going about their day-to-day business. And thanks to our Insync tech, they may not even notice they have amassed a digital nest egg until they check their account.


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The content of this article does not intend to provide any general or personal financial product advice (as defined in Section 766B of the Corporations Act). It is meant to be informational and of a general nature only. You therefore need to carefully consider whether the information in this article is relevant to you in light of your particular needs and circumstances. 

INCNT is a cryptocurrency and its value (along with other cryptocurrencies mentioned in the article) will depend entirely on the current market supply and demand. Therefore, we cannot guarantee the value of any cryptocurrency (including INCNT) at any time, nor do we guarantee that the value of any cryptocurrency (include INCNT) will either rise or fall (or become valueless) in relation to any other form of value, including fiat currency, or other digital currencies. The article is not an endorsement of any type of cryptocurrency.

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