According to the S2F model, the price of BTC should be around USD 88,531, but PlanB predicted it could be much higher. The COVID-19 pandemic, the attacks by Elon Musk and the popularity of non-fungible tokens have affected this demand and adoption dynamics.
The price of Bitcoin (BTC) still struggles around the USD 30,000 mark, so the stock-to-flow (S2F) model is now the furthest from its estimates. More than two years ago, Twitter user and anonymous Dutch investor, PlanB, popularized the model.
People consider the S2F model is one of the chief quantitative valuations for the first existing scarce digital currency. According to the model, the scarcity of certain materials or assets is what drives their prices higher.
The S2F model seeks to value Bitcoin the same way as scarce commodities like gold and silver. Its essence is that assets like Bitcoin, gold and silver only have a limited supply flow in a given period. In contrast, there is a greater supply flow of raw materials such as oil, copper and steel, which is theoretically unlimited.
Bitcoin has a maximum supply of 21 million tokens, and its mining process requires a lot of time and energy. Therefore, only a certain number of new coins can come into circulation in a given period. Even though the cryptocurrency had fit perfectly into this model, KuCoin Global CEO Jhonny Lyu said that the situation has changed.
Negative Deviation from the S2F Model Is the Highest in the History of Bitcoin
The S2F model indicates that the price of BTC should be around USD 88,531, almost three times its previous price. In early 2021, PlanB suggested that Bitcoin could reach between USD 135,000 and USD 450,000 before December. Besides, the model predicts that Bitcoin would reach the long-awaited USD-1-million mark within four more years.
A survey that PlanB recently conducted on Twitter revealed that 41% of respondents thought the price would remain below USD 100,000 this year. In March, when Bitcoin was trading at USD 55,000, 16% of them believed the same. PlanB said that Bitcoin prices deviating from the S2F model make even him uneasy.
Lex Moskovski, the CIO of Moskovski Capital, noted that the negative deviation from S2F had been the highest in the history of Bitcoin. He said that those believing in the model could buy Bitcoin since this price drop would be unexpected.
Dynamics of the Demand for and Adoption of Bitcoin Changes for Various Reasons
Since March 2019, institutional and retail adoption rates in the market for Bitcoin and other cryptocurrencies have increased dramatically. The COVID-19 pandemic has also affected this demand and adoption dynamics since it has led to the massive inflation of the supply of US dollars.
Elon Musk and the popularity of non-fungible tokens (NTFs) have contributed to the awareness of cryptocurrencies and blockchain technology.
Lyu said that emerging projects and altcoins would distract investors’ attention and diversify their investment portfolios. The dominance of Bitcoin has fallen from more than 60% to 46.3%, which means a growing altcoin sector.
As an example of the shifting demand and adoption of Bitcoin since the inception of the S2F model, the Grayscale Bitcoin Trust Fund (GBTC) recently suffered from several stock breakouts. This expiration increased the downward pressure on Bitcoin, causing it to drop to around USD 30,500 from nearly USD 32,200.
By Alexander Salazar
