Researcher Challenges Stock-to-Flow Model for Bitcoin, While Still Arguing Bitcoin’s Price Will Increase

Jack Choros

Content Marketing
October 9, 2020

ByteTree is an analytics firm that provides institutional level data surrounding crypto assets to large investors. It’s Co-Founder and Chief Investment Officer is Charlie Morris. In a recent report published by the firm, Morris states that Bitcoin is more like a technology stock than it is a currency, and that the popular stock-to-flow model for predicting Bitcoin’s price is actually a very flawed way to do just that. If Morris is right, this might have major implications for investors and how they make their decisions regarding cryptocurrency investment. If he is wrong, the sky is the limit for Bitcoin’s price, at least if you ask stock-to-flow evangelists. The question is, who is on the right side of the fence here?

 

What is the Stock-to-Flow Model?

The phrase stock-to-flow model sounds fancier than it really is. The word stock speaks to the existing total supply of Bitcoin available for exchange between investors. The word flow speaks to the number of new bitcoins entering the supply. The term’s inventor is PlanB, an anonymous whale investor we’ve mentioned a few times here at Netcoins. Proponents of the model point out that stock-to-flow is regularly predicting a higher and higher Bitcoin price with a significant level of accuracy.

 

Why Morris Strives to Debunk The Stock-to-Flow Model

Morris argues that the stock-to-flow model only really takes into account the supply side of supply and demand economics. He says it’s really the demand side that investors need to pay attention to since the total supply of Bitcoin is forever fixed at 21 million.

Morris goes on to say that the biggest flaw in the stock-to-flow model is that the model assumes that any new flow of bitcoins are the only bitcoins available for sale. While many investors are inclined to hold onto their Bitcoin and not sell, many others choose to trade it or actually use it to purchase goods and services. That’s why in Morris’ opinion, as the new flow of bitcoins entering the market diminishes thanks to the halving event (which occurs every time 100,000 blocks are mined), the new flow actually impacts the price less and less over time.

The demand side argument is certainly valid, but whether Morris agrees with PlanB or not is almost a moot point. That’s because Morris still sees Bitcoin reaching significantly higher highs in the coming years. He just thinks the stock-to-flow model is a poor way to evaluate Bitcoin’s value.

Do you agree with the stock-to-flow model? Do you think the price of Bitcoin will go higher regardless of the model’s validity? If so, get your Bitcoin at Netcoins, the leading cryptocurrency exchange in Canada.

Written by: Jack Choros

Writer, content marketing at Netcoins.