The price of Bitcoin showed a downside break of the range that the stock-to-flow model had risen. Although this BTC valuation model usually has variations, it remains in force.
One of the indicators with the most optimistic prospects for predicting the price of Bitcoin (BTC) is precisely the stock-to-flow (S2F) model. However, it seems to be failing due to the most recent cryptocurrency market crash.
The creator of the model, PlanB, shared on Twitter a graph showing a downside break of the estimated range of the price of Bitcoin. The analyst accompanied the image with the text: “Bounce or break, that is the question.”
The analyst also compared this breakout to some bearish market momentum in 2019. That year, the price of BTC approached the lowest point of the range for the prediction model but rebounded again without breaking it. Although there was a breakout this time, PlanB expects the pioneering cryptocurrency to rally as it did on that occasion.
At the beginning of July, PlanB envisaged that the second half of 2021 would be crucial for its model. The market value of Bitcoin is at the lowest point in the stock-to-flow band since January 2019.
It is not the first breakout of those ranges in the model, but most of the previous ones were to the upside. These variations, belonging to the same model, have been reflected in the historical price ranges of Bitcoin.
Measuring these variations can indicate whether an asset is undervalued or overvalued based on stock-to-flow. According to data from Look Into Bitcoin, the Bitcoin S2F difference indicator has been negative below -1 on other occasions.
At the moment, it is at its lowest historical point, with -1.03. Regarding upward variations, the highest point of overvaluation of the cryptocurrency occurred in November 2013, with 1.9.
Market Complexity Goes Beyond the Issuance Bitcoin
The trust of enthusiasts in the PlanB model has waned as it is difficult for Bitcoin to regain its April and May levels.
The world of cryptocurrencies inherited the stock-to-flow model from traditional markets, basing on the supply of assets. In the case of Bitcoin, the S2F model bases its projections on the cycle of issuing new coins. A fundamental aspect is the decreasing nature of the creation of Bitcoin, thanks to the reduction (halving) of rewards to miners.
The model that PlanB created in 2019 seems to remain valid, traversing market cycles since the trading of Bitcoin began. That model indicates that the cryptocurrency should currently be worth more than USD 80,000.
A Twitter user wrote about the price variations concerning the valuation that the S2F raises. He said they were part of the course of the market, which reacts to other elements besides the supply in the circulation of the asset. The pandemic, restrictions on mining in China, and the attacks by Elon Musk have contributed to the drop in price.
After recently losing the USD 30,000 support, Bitcoin has managed to rally again. The market-leading cryptocurrency is currently trading above USD 32,300, according to data from CoinGecko.
By Alexander Salazar
