The Stock-to-Flow (S2F) model to predict Bitcoin price has received strong attention from BTC followers. This model has made predictions that Bitcoin price will reach over $ 100,000 in 2021.
However, some analysts believe that the use of the S2F model is not suitable for Bitcoin. Instead, they argue that the supply of Bitcoin does not increase, and therefore this model cannot explain the market dynamics.
Why S2F has been misapplied in Bitcoin, in mathematical terms:
By using S2F and by restricting ‘flow 'to merely rewards, you are saying Bitcoin supply is an integral function (of changes in supply over time).
But asymptotically changes are zero. There’s nothing to integrate. https://t.co/dK9XpcJTxV
- Hugo Nguyen (@hugohanoi) April 12, 2020
“The reason S2F is not suitable for Bitcoin, mathematically:
By using S2F and by limiting "traffic", merely as a reward, you are saying that the Bitcoin supply is an indispensable function (changing the supply over time).
But asymptotic changes are zero. Nothing to integrate ”.
This is a user's analysis on Twitter called Hugo Nguyen after reviewing the declare by Nic Carter, founder of Coinmetrics.
There is no flow for Bitcoin
The premise of the S2F model is the flow of goods. That is, the rate of production or its supply affects the price as well as the current stock consumption. In other words, supply and demand are two factors for the price movement.
However, according to Carter's analysis, the flow of Bitcoin is really zero. This is based on the assumption that all Bitcoin miners and users understand that Bitcoin has a fixed supply of 21 million BTC.
Thus, no one will see the "supply" of Bitcoin increase. Instead, Bitcoin was issued, just like stock exchanges, but not created in the same sense as other commodities.
“In my book, everything 21 million bitcoins was created when it started, and then was released gradually over time. I think of it as an allotment of stock but haven't invested yet, ”Carter said.
With this assumption, Bitcoin supply is a fixed number, only demand is the sole determinant of the market. This will indicate that the inflation rate of Bitcoin is zero. A radical concept for any currency.
If Carter's analysis is correct, the upcoming halving events and all previous and subsequent halving events are meaningless. The consensus on the network of a fixed supply means that miners' mining of that supply has no final effect on the price of any existing Bitcoin.
On a broader comparison, halving current is only a minor matter. More than 86% of the supply has been mined (more than 18.3 million BTC). Changing the miner reward after the halving event will reduce the speed of the reward but in a very small way.
With such a small change, the effect of halving is more related to miners than supply and demand. This event will definitely increase the pressure on miners who will have to calculate the costs and profits to continue production.
If Carter's analysis is correct, the supply of Bitcoin is a fixed number and halving will have little effect on prices. Instead, investors should focus on demand changes to determine price movements, such as avoiding currencies during the COVID-19 crisis.
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