Although the Stock-to-Flow model predicted the price of BTC accurately between 2015 and late 2021, it failed this time. When the collapse of FTX affected the market, the S2F Multiple dropped below 1.5, a negative analysis never seen before.
This year, Bitcoin (BTC) has moved like a roller coaster, going from a high of USD 47,000 to just above USD 16,600. Although investors use the Stock-to-Flow (S2F) ratio to predict the price of the pioneering cryptocurrency, it seems wrong this time.
Any investor would dream of knowing when to buy an asset at the best price. On social networks, many traders and analysts gain hundreds of thousands of followers that seek to enter the market.
Well-known analyst PlanB, the creator of the Stock-to-Flow predictive analysis model, gets some of the most conflicting opinions from the community.
The Stock-to-Flow Model Aims to Assess the Relative Abundance of Bitcoin
Investors usually use the Stock-to-Flow model to price commodities by assessing two attributes: stock and flow.
While the stock is the existing supply of a good, the flow is the new merchandise supply created yearly. It is possible to determine the relative abundance of Bitcoin by comparing these two attributes.
One of the most prominent features of Bitcoin is that investors know the exact amount of new supply entering circulation yearly. Given that factor, predicting its price with the Stock-to-Flow model may be highly accurate.
The Stock-to-Flow Ratio Fails to Predict the BTC Price Accurately
Over the years, the Stock-to-Flow ratio has proven its ability to help predict the price of Bitcoin accurately. Since the cryptocurrency skyrocketed during the COVID-19 pandemic, the model gained traction due to its preciseness.
In 2011 and 2013, before Bitcoin became a mainstream investment, the value of the cryptocurrency and the Stock-to-Flow ratio diverged. Although the model predicted the price accurately between 2015 and late 2021, it failed this time.
The FTX Collapse Causes the Stock-to-Flow Multiple to Drop
Amid the FTX collapse, the continued decline in the price of BTC has reinforced an already negative trend. That has affected miners, well-known metrics, and many other essential parts of the Bitcoin network.
The price predictions by the Stock-to-Flow model are under increased scrutiny and criticism due to wide fluctuations. Current targets remain significantly higher than the current market price despite those factors.
According to the tracking resource S2F Multiple, Bitcoin should be trading at around USD 72,000. When the collapse of FTX reached the market, the multiple reached below 1.5, a negative reading not seen before.
Despite the Bearish Crypto Market, PlanB Maintains His Position
The creator of the Stock-to-Flow model believes FTX only represents a small error, although the world seems to be ending.
By the way, PlanB has faced accusations, including claims that his analytics tool is fraudulent. For example, Vitalik Buterin thinks financial models that falsely indicate that a number will increase deserve receiving ridicule.
Although nobody knows where the price of Bitcoin will head next, many consider the Stock-to-Flow model might have the answer. However, the uncertain situation in the crypto market might continue to affect the creation of Satoshi Nakamoto.
By Alexander Salazar