Interview: Is the stock-to-flow model failing?

According to the crypto analysis company ByteTree, the popular stock-to-flow model is not a reliable indicator for Bitcoin’s long-term price action.

The Stock to Flow model is flawed, says Charlie Morris, co-founder and CIO of Bytetree data encryption.

According to the popular theory developed by Plan B analyst, the limited supply of Bitcoin is the key resource that will bring its price over $100,000 in 2021 and beyond. However, as explained by Morris in a recent report, progressive pressure from new supply will not be sufficient to cause Bitcoin to appreciate.

According to Morris, the theory does not take into account the decreasing significance that the flow (additional supply) will have compared to the stock (total supply in circulation) in the price of Bitcoin Blueprint. While it is true that there will be an increasingly lower supply of newly mined Bitcoin, Morris pointed out, people will still be able to sell their Bitcoin, thus meeting market demand.

Defending his point, Morris draws a parallel with other scarce assets such as gold: „Nobody thinks that if you turn off gold mining, the price of gold goes to infinity. That is not how it works“.

The fundamental driver of Bitcoin’s price, according to Morris, is the level of activity in the Bitcoin network. In other words, an increasing amount of bitcoin switching hands will bring Bitcoin to new highs.

„The amount of money you transfer in the network […] and the price of bitcoin are highly correlated and always have been,“ he pointed out. In addition, as Bitcoin matures as an asset, macro factors such as inflation, connection yields and the performance of the dollar will increasingly influence its price.

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