The term Stock to Flow of bitcoin is a theory that tells us that the lower the issued currencies and their provision, the higher the price of the asset or currency in the market. This is the same theory that hit the prediction about bitcoin’s performance after the halvings of the years 2012 and 2016 (when the block reward of a cryptocurrency is divided in half to reduce the level of emission).
The analyst PlanB (developer of the stock to flow theory of bitcoin) estimated that the cost of bitcoin would face a wave of appreciation after six months had elapsed after the halving of 2020. Thus we see, that in the first days of the year 2021, bitcoin managed to overcome the barrier of $30,000.
What is the Stock to Flow model?
Analyst PlanB borrowed the traditional stock to flow (S2F) model used in precious metal price prediction to predict what will happen to bitcoin in the future. This new model for bitcoin was unveiled in March 2019 and is intended to review the relationship between the supply and the available existence of cryptocurrencies, performing value calculations based on the supply of the new bitcoins that enter the market to circulate (through mining), compared to the existence or available stock.
How are Bitcoins generated?
Bitcoin operates in a global network of interconnected nodes (P2P), which receive and send information on all the operations carried out through the blockchain. Bitcoins are created through mining (deciphering complex computational calculations to obtain new bitcoins), using a proof of work (PoW), a consensus algorithm on the network used to confirm transactions, and adding new blocks to the chains. The PoW uses powerful computer systems that highly resource-intensive in terms of manpower and time.
What will happen to Bitcoin in the year 2021?
Regarding Bitcoin, the aforementioned theory tries to find the ratio between the coins in circulation and the reward for each block mined. This means that the lower the price, the lower the incentive to create new bitcoins; this would cause the bitcoin in the future to rise in price, and it is here when the model makes its projections, which draws the attention of investors.
The future of Bitcoin
When seeing the upward trend of Bitcoin, the model estimates that by the year 2024, a little less than 20 million bitcoins will be in circulation (the total limit established by its creators is 21 million), with a total value of 5.5 trillion dollars, which means that each bitcoin would cost around $288,000, representing a considerable increase over its current price. However, it is important to note that cryptocurrency prices tend to be volatile, which can directly or indirectly affect other “external” users, who may be driven to buy bitcoins by simple speculation, causing the bitcoin price is even more volatile and unpredictable.
What do you think about this topic? Did you know the Stock to Flow of Bitcoin?
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