Could Bitcoin soon be worth $100,000 or even more?
If you trust the stock-to-flow ratio indicator, which was 95% correct so far, then it looks like it.
What is the stock-to-flow ratio indicator?
First of all: the whole thing is speculation, of course, and purely using a crystal ball. These are ideas that would be interesting to you to look at, but no guarantee.
I also briefly touched on the indicator in my book: Cryptocurrencies Simply Explained
What does the SF indicator mean?
Stock is quite simply the inventory, that is, how much of a product is currently on the market. Flow is the production of the products. This mostly has to do with precious metals like gold and silver, but for those who support the concept that Bitcoin is the digital gold, this also applies to Bitcoin. I strongly support this. Now let’s use these two factors to figure out what the ratio of the two is, i.e. how long it takes to reach the stock using the current flow. This can be done by quantity, but also by value, by the price of the product. In other words, how much gold is produced using the price of gold in kilograms and how much is the gold worth in total? This can be calculated:
It takes 62 years in the case of gold, but the inflation of gold is relatively low. It’s lower for silver, it takes 22 years, and it is said that if the SF ratio is lower, the price is usually a bit lower and with a high ratio the price is usually higher, simply because the product is scarce and there won’t be a lot of inflation. Bitcoin has an SF ratio of about 27 years. How is this calculated? There are currently 17.7 million Bitcoin in circulation, multiplied by the price would be the marketcap. The production is currently 657,000 Bitcoin/year (simple calculation: about 12.5 Bitcoin every 10 minutes multiplied by 6 for the value per hour, with 24 per day, with 365 per year).
The question: How does such an average value come about?
As with anything else, this has to do with market economics — supply and demand. For gold, if the price goes up, the miners have more money and produce more gold. Then stock and flow go up, but the flow increases particularly strongly — clearly, it is produced like crazy. So the SF ratio goes down. Eventually, there will be an overproduction, because the supply exceeds the demand, there is more and more gold in the market and with less production, the price will sink. Then the stock-to-flow ratio rises again and levels off at 62.
Price is a driving force here, of course, but more important is the flow, the production.
In general, one can remember: With more flow, the SF ratio goes down, with less flow it increases.
Important: Bitcoin is different. With Bitcoin, production is steady, which means that if prices go up, the production will remain stable. So, although the price and stock are increasing, the SF ratio can still rise. So, concerning Bitcoin, remember: the higher the price, the higher the stock-to-flow ratio. That’s the difference to gold: production cannot be changed. What is of course incredibly crazy is that this stock-to-flow ratio has an accuracy of 95%.
Here you can see that the SF ratio shot up incredibly at some points (Bubble 2011, 2014, and the end of 2017), but you can also see the jumps that follow. So if you sold, if the SF ratio was up and buying again, if the SF ratio was down, that was a very, very good buy. I have also succeeded. But looking into the past is always easy, looking into the future is difficult, but we still want to do it now.
According to the SF ratio, Bitcoin currently has a fair price of $8500 to $9500, confirming my forecast from the beginning of the year ($3000 to $8000). However, next year we will only have half of the flow. That means we need at least a doubling of prices, even more, otherwise the stock-to-flow will not be correct. You can see here that it goes up in steps and counting in halving it should go up next year to at least $100,000, possibly even to $300,000. After that, of course, as always, we expect a setback to around $40,000. As I said, this indicator is very accurate, and I have used it myself in the past few years, but you have to keep in mind that we still only speculating here.
However, it doesn’t just jump, and we have to ask ourselves:
- At what speed does this increase happen?
- How fast will it happen?
- And when will it settle?
The stock-to-flow ratio predicts that Bitcoin will go up to $1 million in the next few years. Of course, this prognosis can be wrong, nothing is a promise here, it’s just a few thoughts.
What do you think? Is it all mischief or do you think it makes sense?
Have fun and good investments,
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PPS.: If you’re new to cryptocurrency, read my book “Cryptocurrencies Explained Simply”: http://geni.us/crypto_simple
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