PlanB, the anonymous cryptocurrency analyst who popularized the stock-to-flow model, said that Bitcoin has now entered the “fear” zone, meaning that it is currently positioned below the S2F model value. This has historically indicated the beginning of a bull rally.
Bitcoin Moving Away From S2F Model Value Into The Fear Zone
Bitcoin’s inability to break through the $10,000 barrier has left many convinced that a price rally won’t happen for another few months. However, some metrics suggest that we might have already made the first steps towards an explosive bull rally.
According to anonymous cryptocurrency analyst PlanB, Bitcoin has now entered the “fear” zone, a period of time when Bitcoin is gearing up for a price increase.
Historically, every time BTC has positioned itself above or below the value predicted by the stock-to-flow model, the market entered either a “greed” or a “fear” zone. Unlike the fear zones, which have historically lasted for well over a year, greed phases were usually short-lived, as they represented a moment in the history of Bitcoin when it was largely overvalued by the market.
Greed and fear zones according to Bitcoin’s stock-to-flow model. (Source: Twitter)
How Correct is the Stock-To-Flow Model?
Usually reserved for determining the value of commodities such as gold and silver, the stock-to-flow model was first applied to Bitcoin last year by the above-mentioned analyst. Driven by the idea that Bitcoin acted more like a commodity than as a currency, the analyst applied the model to the world’s first digital currency in order to predict its price.
Put simply, the stock-to-flow ratio is the amount of a commodity held in inventories divided by the amount produced annually. Bitcoin’s stock-to-flow ratio of 25 puts right above silver, with a SF of 22, and below gold, which currently has the highest SF ratio of all the commodities at 62.
In his original analysis, PlanB said that BTC had a 95% R squared correlation to the S2F model. The latest data shared with the analyst, while showing the correlation to be marginally smaller, corroborates this.
Chart showing BTC’s correlation and cointegration with the stock-to-flow model. (Source: PlanB)
Therefore, the S2F model has historically been fairly accurate. However, with the market getting larger each year, and more and more factors affect BTC’s price, it’s hard to conclude whether or not the model will hold true in the years to come.
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