The FTX collapse has nervous the crypto ecosystem as whale investors continue to drain billions of dollars from the crypto market, creating a scarcity of stable infrastructure to push leading assets like Bitcoin to the North. Moreover, the S2F ratio has also reached the bottom line, indicating a tremendous price for Bitcoin by the end of 2022 after it hits a yearly low below $18K.
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Bitcoin’s Scarcity And Stock-To-Flow Ratio
Bitcoin has witnessed a significant scarcity in its circulating supply as the FTX’s bankruptcy filing has created a black hole in circulation. According to the stock-to-flow (S2F) model, Bitcoin price is currently trading far below its yearly target price. The S2F model further indicates that Bitcoin has drastically changed its mood following mixed market sentiments as it has projected itself to an unexpected downward trajectory from its planned growth.
The stock-to-flow model indicates the expected future value that an asset can achieve. Following several great moments of BTC, like its last all-time high in November 2021, the model implements block subsidy halving events as the core element in determining the expected exponential price growth through the years. S2F enables a significant price deviation of Bitcoin and shows an expected price trajectory, accounting for all these metrics. The current price targets are far higher than the spot price.
Bitcoin May Soon End Its Bearish Drama
The stock-to-flow ratio indicates the number of years that will take Bitcoin to attain a target price at a current production rate. According to on-chain data provider, LookIntoBitcoin, Bitcoin should trade near $72,000 on 19 November, giving a multiple of -1.47. However, that prediction became invalid as BTC traded in a consolidated range near $16K.
The data further predicted that the multiple reached -1.5 on 10 November, a record negative reading in S2F’s lifetime journey due to the FTX impact hitting the market. Moreover, the S2F model created by an anonymous strategist, Plan B, highlighted that Bitcoin is trading far more deviated compared to its previous trading cycles, and Bitcoin price may soon touch an overwhelming price by next month as it can trade at $78,280 on 31 December 2022.
Regarding the S2F model, a famous crypto analyst, Philip Swift, said, “Price has now strayed further below the S2F line than ever before. Currently a variance of -1.26 vs. the previous all-time low of -1.21 back in 2011.”
The S2F model compares an asset’s current stock value to the rate of ongoing production or how much is produced in a year. A higher ratio hints at a greater scarcity, which generally leads to a higher price of the asset. A pseudonymous Dutch former institutional investor, “PlanB,” invented and popularized the Bitcoin stock-to-flow ratio. While the Bitcoin stock-to-flow ratio has indicated some historical correlation with BTC price, the methodology has significant limitations when it comes to predicting the future value fluctuations of Bitcoin accurately.