Analysis: stock-to-flow model and Bitcoin developments

ByteTree has published a report exposing the S2F model. Co-founder Charlie Morris argues against the model.

ByteTree, a provider of crypto asset data, has a reportin which one of the most famous Bitcoin valuation models is disclosed. It is the “stock-to-flow” model (S2F model). The model predicts that Bitcoin will rise to $ 100,000 in just one year.

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S2F models have existed for decades. They are used to predict the value of various raw materials. “Stock” stands for the existing offer of the asset and “Flow” for the newly generated offer. Bitcoin’s price activity has been studied in relation to Bitcoin halving.

ByteTree co-founder not convinced of the S2F model

Charlie Morris, ByteTree’s co-founder and chief investment officer, claims that Bitcoin’s price level is not determined by the supply side of the economy. Supply and demand would adjust in an economy until the new equilibrium is reached. Since the supply of bitcoins is fixed, it is up to the demand side to determine the rate.

If the network has a large inventory and a relatively small flow, it is inventory that matters. As the influx decreases it becomes less important to influence market prices.

Bitcoin miners would also have become less relevant , as illustrated by the decline in the ratio of their earnings to market capitalization. Meanwhile, their „economic footprint is decreasing“:

Bitcoin miners earned 50 percent of the market capitalization once a year. At that time they had a big impact on the course, but not at 1.7 percent. Similarly, they made up 68 percent of the total transaction value, which has fallen to 3.9 percent.

Morris goes on to explain that there are many conceivable reasons why the Bitcoin rate could rise or fall – the S2F model is not one of them. Bitcoin represents a high-performance digital network, a kind of technology share with no profit or CEO, but growing distribution and application.