Stock-to-Flow Model and Demand Model

In this article we will see two prediction models for the price of bitcoin in the medium and long term: the famous Stock-to-Flow (or Bitcoin Supply Model) developed by Plan B, and the Bitcoin Demand Model developed by FIdelity to compare the two sides of the coin.

Stock-to-Flow (S2F) Model or Bitcoin Supply Model

It is an economic theory created by the Plan B analyst that measures the scarcity of an asset.

 

This scarcity is defined as the ratio between the bitcoins available in circulation (stock) and the annualized production of new bitcoins (flow).

In such a way that the S2F of bitcoin (or also called scarcity) would be calculated as follows:

 

S2F (BTC)=Stock/Flow=19 million/(900*365)=58 approx.

Being:

  • 19 million, the approximate total amount of bitcoin mined

  • 900 the amount of new bitcoin created per day

  • 365 days of the year

 

Plan B has calculated the S2F of scarce metals and minerals such as gold, silver, diamonds, and even assets such as real estate, and has found that the higher the S2F, the greater the scarcity and the greater the capitalization of assets. asset market.

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Let's look at some examples:

 

 

 

 

If we wanted to calculate the S2F of the euro or the dollar, we could not because the denominator would tend to infinity, therefore, the S2F would tend to 0. Let us remember that for this reason metals and the real estate sector are considered reserves of value, not cash. which is devalued.

The key is that bitcoin's S2F is not constant, but tends to increase quite a bit over time. This occurs mainly because bitcoin is becoming scarcer as halving events reduce the production of new bitcoin by half every 4 years, which affects the denominator of the aforementioned formula.

Let us remember that:

The production of new bitcoin between 2009 and 2012 was 7,200 per day

The production of new bitcoin between 2012 and 2016 was 3,600 per day

The production of new bitcoin between 2016 and 2020 was 1,800 per day

The production of new bitcoin between 2020 and 2024 is 900 per day

The production of new bitcoin between 2024 and 2028 will be 450 a day

And so on…

Therefore, as the denominator decreases (Flow) and the numerator increases (Stock), the S2F increases.

 

Graphically we see this increase in the S2F and the capitalization structured in clusters: When the S2F was around 3, the capitalization was 100 million dollars. When the S2F was around 10, the cap was $10 billion. When the S2F was around 25 the cap was $100bn and now that the S2F is around 58 the cap is a trillion.

At the moment, the capitalization of bitcoin has already reached that of silver represented by the gray dot and is similar to that of diamonds represented by the white dot. However, since May 2020 bitcoin's S2F went from ~25 (similar to silver) to ~58 (more similar to gold) coinciding with the 2020 halving event. Therefore, according to Plan's theory B (and according to the chart), bitcoin's next goal would be to reach gold capitalization to honor its newly released S2F of ~58.

 

If it were to really match that of gold, one bitcoin should be worth around $520,000.

10,000,000,000,000/19,000,000=520,000 dollars 1 bitcoin approx.

According to the lag observed from when bitcoin reaches the S2F of an asset until it reaches its market capitalization, 520 thousand dollars could be reached in approximately 4-5 years.

In fact, we see how the passage from one S2F value to the next is accompanied by an increase in market capitalization, with the consequent increase in price.

In 2024, bitcoin's S2F will be around 100. It will overtake gold in scarcity. Yes, you read correctly, to gold. What's more, it will have the same S2F as the entire world real estate sector. The model predicts that the capitalization of bitcoin will become the same as that of the entire world real estate sector, that is, 100 billion. Which would lead us to a value of 5 million dollars per bitcoin in 2030. The predicted growth is such that it is forecast that by 2030 we would speak in terms of SATs instead of bitcoin (1 SAT = 0.00000001 bitcoin).  

 

 

Bitcoin Explosive Demand Projection or Bitcoin Demand Model

We have already analyzed the supply of bitcoin in the Plan B Stock-to-Flow model. However, a shortage of supply by itself is not a guarantee of a high price. We also need to analyze the opposite part: demand.

 

Jurrier Timmer, Head of Global Macroeconomics at $4.9 trillion asset manager Fidelity Investments, projects the future of bitcoin demand.

 

Timmer uses as a model the S curve of mobile user adoption per 100 people in the US and superimposes it on the growth of Bitcoin addresses with more than 1 dollar to date. In this way, Timmer projects future values for the demand for bitcoin.

 

The graph shows how Timmer predicts that, in 2035, bitcoin will have 490 million users. This is one of the most conservative predictions of demand, that's why I expose it to you.  As we have mentioned before, a growth of 10 million users per month has been observed, which, if it continues like this, would mean that in 2035 there will be more than 1,500 million users. But let's continue a little more with the Timmer model...

 

By performing a regression, Timmer converts the demand curve to a price projection curve. According to this new curve, in 2035 a bitcoin will be worth 1.8 million dollars, a much more conservative figure than Plan B in its supply projection, but just as bullish.

In short, I wanted to expose in this section one of the most conservative projection models for bitcoin demand. Developed by one of the largest, most prestigious and most traditional fund managers on the planet. Despite this, Timmer's model yields a future price that will leave more than one with their mouths open.

Taking this into account, considering bitcoin as a long-term savings does not sound so far-fetched.

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