Story by: Weiss Crypto
This relatively simple-but-logical model provides clues
How do you estimate the “true” value of Bitcoin? Or better yet, how do you predict what it will be worth at its next major peak?
Unlike stock valuation models, there’s no company, no profit-and-loss statement and no price-to-earnings ratio. There’s also no balance sheet. Ergo, no asset-valuation model.
Still, some folks have come up with valuation formulas. All are hotly debated.
Chris Burniske, for example, bases his evaluation on an “equation-of-exchange” model.
Kyle Samani seeks to do it based on a “market-share-capture” model.
Valiant attempts! Trouble is, both rely on some slippery assumptions, like the velocity of money.
It’s one of the most specific — and accurate — crypto valuation models I’ve seen so far. All based on actual measurable factors that reflect scarcity.
What exactly is Stock-to-Flow?
Very simply, it’s the current circulating supply divided by the annual amount produced. And it can work for virtually any commodity.
A screenshot of a cell phoneDescription automatically generated
Take gold, for instance. In the chart above, gold has a Stock-to-Flow (S2F) value of 62.
Meaning at today’s rate of production, it would take 62 years to reproduce the current supply of mined gold in the world.
That’s relatively scarce. In fact, based on this metric, gold is nearly three times scarcer than silver, which has a current S2F of just 22.
Now, care to guess what Bitcoin’s Stock-to-Flow ratio is right now?
Answer: Nearly 27.
That’s right. Based strictly on this measure and holding constant all other factors, it would take 27 years to reproduce the current Bitcoin supply.
Is that scarcity metric similar to silver’s? Yes … for now. But …
Approximately every four years, the Bitcoin protocol mandates a major change called “halving” — a 50% reduction in the block reward that miners receive for creating new Bitcoin. And the next halving event is expected in or around May 2020.
At present, BTC is produced at a rate of 12.5 BTC (i.e., the block reward) every 10 minutes. Come May 2020, this block reward will be halved to 6.25 BTC.by