The report, created by research group ByteTree, aims to refute one of the most popular Bitcoin (BTC) pricing models – Stock-to-Flow. The model gives a very optimistic view of Bitcoin and claims that we will see price levels above $ 100,000 throughout the year.

Charlie Morris, co-founder and chief investment officer of BytTree, uses chapter four of his report to “uncover” this. Stock-to-energy models have been used for decades to predict the prices of commodities such as gold and silver. Capital is the existing supply of the asset and electricity is the additional new supply that is being created. When used in bitcoin, it depends on whether inflation or flow will gradually decrease while the ratio between stocks and flows will gradually increase. Therefore, the price warning is “no limit”.

Morris argues that the price of bitcoin is not determined by the supply economy at all. He argues that in an economy, the market is regulated by both sides: supply and demand, until a new equilibrium is reached. He concludes that since the supply of Bitcoin is fixed, price determination is dependent on demand.

Morris believes that another problem with this model is that it focuses so much on newly mined coins as if they were the only currency available for sale, “but anyone who owns bitcoin can sell.” It also indicates that the dynamics of the network have changed:

When the network has a large stock and a relatively small flow, stock matters. When electricity levels are low, the impact on market prices becomes less significant. ”

In addition, he suggests that the role of bitcoin miners has declined over time, as evidenced by the lower revenue-to-market ratio:

Miners earn 50% of the market value annually. It had a huge impact on the price at the time, but with 1.7% it didn’t. In the same way, 68% of the total contract value was purchased, which dropped to 3.9%. ”
He acknowledges that miners still play an important role in maintaining the network, “but their financial footprint is shrinking.”

Morris criticizes the model once again – it does not take into account the actual use and approval of bitcoins, which he believes are the intrinsic value of the Internet:

“I would say that Bitcoin is a reliable and thriving digital network. It is a kind of non-profit foundation or CEO technical foundation, but with a high level of security and extended distribution and application. There are many reasons the bitcoin price can rise or fall, but S2F is not one of them. Who are they “.

Source: Glassnode.
It’s worth noting that the price was holding at the level that the model had expected for several months after splitting the third block of bitcoins in two.

Source: CoinTelegraph