An increasing number of crypto influencers are sizing up the stock-to-flow ratio.
The metric, which is used to forecast the future price of commodities based on their supply, went viral in 2019. Analysts such as PlanB say it shows the impact of Bitcoin’s halvings, which cut the amount of new supply entering the market every four years.
PlanB, specifically, says the model indicates BTC will hit $1 million in the next decade, and reach $50,000 to $100,000 by December of 2021.
Meltem Demirors, the chief strategy officer at the digital asset manager CoinShares, is the latest to tackle the notion that Bitcoin will behave as it has in the past and rise dramatically after its next halving, which is set to happen in May of 2020.
She says the emergence of Bitcoin and crypto derivatives could change the trajectory of the leading cryptocurrency and make the impact of this next halving significantly different.
“There is a very real possibility the price of Bitcoin does not go up after halving. For the first time, there is a robust derivatives (futures, options) market for Bitcoin. Most firms looking to speculate on Bitcoin will trade a derivative, not the underlying.
A topic that’s been studied in other commodities markets is how pricing is set. Bitcoin is, arguably, a digital commodity. Normally, producers set the price of a commodity (classic S = D = P from Econ 101) when derivatives take off, producers lose the right to set prices…
The more Bitcoin becomes an investable asset, the more its price becomes decoupled from its value and its supply and demand. It becomes yet another backwater in the great game of global speculation. It becomes ‘financialized.’ It becomes correlated to macro markets.
Today, the Bitcoin derivatives market is still small. But the market will grow quickly. will be interesting to watch. Derivatives on Bitcoin are an oxymoron. But they’re the fastest growing part of the market.”
Bloomberg Markets editor Joe Weisenthal is also skeptical of stock-to-flow predictions. In a recent newsletter, he argues that Bitcoin’s fixed supply is well-known and already priced in.
Bitcoin has only had two halvings in its history, so there is a limited set of data to judge their impact on the price of BTC. But at the end of the day, PlanB says the model is simple math.
“Stock-to-flow model predicts the long term trend, and greed and fear cause the actual Bitcoin price to dance around this trend.”