I know bitcoin has had a volatile day based on the number of notifications I have on my phone when I wake up. The more volatile, the more notifications.
This week we’ve seen bitcoin price drop by 13% and people have been pinging me to see if it’s time to sell, while others have been asking if it’s time to buy. My answer is always the same, it depends on your timeline. Im not a short term crypto day trader. Rather, I look for protocols and networks that I believe are going to be longterm disruptive winners driving the infrastructure inversion that I referred to in one of my previous posts.
Bitcoin is one such winner and over time, will continue to increase in value as the narrative of bitcoin as the global money network continues to take hold. With only 21,000,000 bitcoin being produced and the difficulty of mining bitcoin increasing every four years (known as the halving), the value of bitcoin will continue to rise. Now that is not without its short term volatility and massive price swings as we have seen since the beginning of bitcoins history and will continue to do so for the foreseeable future.
That brings me to this weeks audio recommendation. Willy Woo and PlanB being interviewed on The Bitcoin Fundamentals Podcast.
Both Willy and PlanB share their views on the current bitcoin bull market, how long they believe it will continue and the elements that they look for to predict when we’ll see a top or floor. If you haven’t heard of either them, I recommend you give them a follow on Twitter.
In the interview, PlanB goes into further detail on his S2F (stock to flow) model that he released in March 2019 (when bitcoin was at around $4,000). In that model, he predicted that bitcoin would reach $55,000 some time after the bitcoin halving in May 2020 and that bitcoin as an asset would reach $1T in market cap.
What were the elements that would drive that outcome, namely: A worldwide event that could result in hyperinflation, excessive money printing, and/or large institutions buying bitcoin.
It’s been surprisingly accurate at tracking the bitcoin price movement (see chart below) so its worth understanding a bit more about it.
What is the Stock-to-Flow Model?
Without getting too technical, the S2F model takes the number of bitcoin in reserves and divides that by the amount produced yearly. In essence, it gives us the number of years that it will take (at the current production rate), to achieve the current stock of bitcoin. The higher the ratio, the more scarce the asset and the better it is as a predictor of upward price movement.
Currently, bitcoin S2F is lower than gold (55 for bitcoin vs 59 for gold), but with each halving that number will go up ultimately replacing gold in its scarcity. And, with every halving, the S2F doubles and shows a 10x increase in market value. A trend that has held true for the previous 3 halvings.
So where does the S2F model put us today?
The model predicts that we should see bitcoin reach over $100k in price before the next halving.
PlanB has gone further to revise the model by removing the bitcoin that is believed to be lost and no longer in circulation. Instead of 21,000,000 bitcoin, the model uses 19,000,000 rather.
Under that new model (S2FX), the S2F number for bitcoin increases to 56 and he predicts a market value of the next BTC phase between now and 2024 of $5.5T. This translates into a BTC price (given 19M BTC in 2020–2024) of $288K.
If he’s right, there’s still plenty of room for bitcoin to go from here and each dip should be seen as a buying opportunity.
There are other indicators that Willy Woo unpacks and talks about in terms of on-chain metrics that he is seeing and why he is so bullish on bitcoin long term as well.
It’s an interesting listen. I hope you enjoy it.
If you enjoyed this post, subscribe or give it a like!