The model for more than two years has been considered as one of the leading quantitative valuations for BTC. It is built on the premise that the more scarce a commodity becomes, the more valuable it is. It prices BTC similar to the other scarce traditional assets like gold and silver.
With a maximum supply of 21 million coins, it means there won’t be any more coins introduced in the market while crypto traders will keep on increasing. The more the token becomes limited with increased demand, so will its value keep rising. Therefore; as Bitcoin’s stock-to-flow (S2F) rises, so does the price.
So far, the price model has had some ambitious Bitcoin price predictions. All these predictions must be fulfilled for the model to stay valid.
According to the model, Bitcoin’s price should at least hit $100,000 by the end of 2021. Furthermore, it predicts that Bitcoin’s price will hit $1 million by July 2025.
Plan B’s S2F struggling to hit its targets
Since its launch in 2019, the S2F model has had several price predictions, both short and long term. It has also had to update some of the values with the changing crypto market landscape.
The model at its highest values had predicted Bitcoin to trade at $30k in May 2021, $90k by September 2021 and $100k by January 2022. Even though the model got the May prediction right as the token was selling at around $35k, it was way off the mark for September as it was trading at $41k.
So far, from every consideration, it is unlikely for Bitcoin to hit $100,000 before the end of the year. While the market can always shift at any time, right now there’s no market variable likely to massively move the market.
With the token failing to hit such values, the S2F model will be invalidated. So far, the model’s inventor believes it is still on course, and that it retains relevance.
An alternative model?
Even though the S2F remains one of the widely used Bitcoin price models, it would not be useful when it becomes invalidated. The market must therefore look for other models.
Daniele Bernardi, founder of the PHI token project and a serial entrepreneur is one of the crypto experts to have drawn on some of the inadequacies of the S2F model. He claims that scarcity in itself is not enough to predict the fair value of an asset unless it is backed by demand. He gives an example of drawn art, where even though it can be scarce, it would remain worthless without demand.
Bernardi opts for the rate of adoption model. The model is based on the actual users of Bitcoin and the wallets created. It expects the token to trade at around $60k by the end of the year.
Even though the S2F model remains valid for now, failing to hit its end of the year target would be further evidence that it is already invalidated.