The price of bitcoin broke down the range posed by the stock-to-flow model.
This BTC valuation model usually has variations, although it remains current.
The valuation model of bitcoin (BTC) stock-to-flow or Reserves versus Flow, one of the indicators with more optimistic perspectives for the prediction of future movements of the cryptocurrency, seems to be failing with the most recent crash of the cryptocurrency market .
In a graph published by the creator of the stock-to-flow for BTC (also abbreviated as S2F), PlanB, on Twitter, it can be seen a break to the downside of the estimated price range that BTC should have currently. “Bounce or break, that’s the question”, was the text with which PlanB accompanied the image.
In response to a tweet from another user, the analyst compared this break with a moment in the bear market, during 2019. In March of that year, the price of BTC approached the lowest point of the range for the prediction model and, without breaking it, it bounced again. Although this time the break did occur, PlanB expects the main cryptocurrency in the market to rebound as on that occasion.
Bitcoin broke down the price range of the stock-to-flow model. Source: PlanB / twitter.com
Already at the beginning of this month, PlanB itself assessed that the second half of 2021 would be key for its model, with the market value of bitcoin situated at Lowest of the stock-to-flow band since January 2019.
It is not the first break of those ranges of the model in history. However, most of the previous breakouts were to the upside, as the PlanB chart shows. These variations are part of the same model, which so far they have been faithfully reflected in the price ranges historical BTC.
Measuring those variations can, in fact, give an idea of whether an asset is undervalued or overvalued based on stock-to-flow. Data from Look Into bitcoin shows that on other occasions, the S2F difference indicator for bitcoin has been negative below -1. However, right now it is at its lowest ever point, with -1.03.
As for the upward variations, the highest point of overvaluation of the cryptocurrency occurred in November 2013, with 1.9 in the indicator.
Variation of the stock-to-flow model has already had moments of high undervaluation in the past. Source: lookintobitcoin.com.
The market is more complex than just the issuance of bitcoins
As CriptoNoticias reported at the end of last June, bitcoin’s problems to regain its April and May levels have dented the trust of the bitcoin enthusiast community about the model used by PlanB.
Stock-to-flow is not a metric typical of the world of cryptocurrencies, but was inherited from traditional markets based on the supply of the asset. Broadly speaking, in the case of BTC, bases its projections on the cycle of issuance of new bitcoins. And one of the key points is the decreasing nature of the creation of bitcoins, thanks to the mechanism of reduction of rewards to miners known as halving.
So far, the model created in 2019 seems to hold true, traversing market cycles from the beginning of bitcoin trading in the market to the present. According to this model, the cryptocurrency it should currently be valued above $ 80,000.
As one Twitter user noted, S2F price fluctuations from valuation are part of the market course, reacting to many more elements than the asset’s outstanding supply. Among them, many external ones, such as the pandemic, the persecution of miners in China or even Elon Musk’s attacks on the environmental impact of Bitcoin.
«[Esa reflexión es un] key point that many do not understand (and will never understand). Covid, China, Elon, those are all outliers, and that’s okay. A model attempts to capture a general trend with a few key variables. The art of modeling is finding balance and keeping it as simple as possible.
After having lost the $ 30,000 support this Tuesday, bitcoin has managed to rally again. At the time of writing, the market-leading cryptocurrency is trading on exchanges for over $ 31,600, according to CoinMarketCap data.