Where will Bitcoin stop?
Yours truly thinks he will never stop for the simple reason that the system of money creation through interest-bearing debt is rushing exponentially. The amount of money in circulation has never stopped increasing, and will never stop increasing. So, why think that there can be a limit to the value of bitcoin?
Especially since we have crossed peak oil. From now on, the laws of physics tell us that the amount of things we transform (economic growth) will decrease. This, combined with a quantity of money that can only go up to crescendo, promises the inflation that bitcoin feeds on.
To find the right price for bitcoin, you have to start by finding correlations. For example with the quantity of money printed by central banks, the global debt / GDP ratio, inflation, the speed of extraction of raw materials, etc.
We must also take into account the intrinsic value of bitcoin and therefore its fundamental attributes: finite money supply, security (hash rate), divisibility (BTC has eight decimal places / 0.00000001 BTC = 1 satoshi), transaction speed, stateless currency and permissionless.
But if it is easy to anticipate a perpetual rise in bitcoin, it is however more difficult to make precise predictions a few years down the road. Hence the usefulness of having a multidisciplinary approach. One of the models often put forward is the Metcalfe’s law. The latter argues that the utility / value of a network is proportional to the square of the number of its users.
In other words, beyond a certain critical threshold, the value of the network increases extremely quickly. We’re probably not far from that critical threshold now that around 150 million people own bitcoin.
Another model proved to be even more accurate in its price prediction: the model Stock-to-Flow (S2F).
As its name suggests, this ratio relates a stock to a flow. For example the world’s gold stock and the amount of gold mined each year on earth.
Plan B (@ 100trillionUSD, 400,000 followers) is known to have created a pattern related to bitcoin’s S2F ratio. With great success so far:
The S2F is not an oracle and does not offer any guarantees. Nevertheless, its precision and elegant simplicity make it worth highlighting.
The S2F ratio is simply the number of years it takes to double the stock of a given item given its annual production.
Nothing could be simpler to calculate. Just divide the current stock by the annual production. Let us take the example of gold again. According to the World Gold Council, 200,000 tonnes of gold were lifted out of the earth. If you divide this stock by the number of tonnes mined each year (3000), you get a ratio of 66.
In the case of bitcoin, with the current stock being 18.6 million BTC and annual production 328,500 units, its S2F ratio is 57. Put another way, gold and bitcoin are currently showing a similar scarcity. While waiting for the next halving …
In May 2024, the halving will halve the production of bitcoins. 19,687,500 BTC will then have been mined (i.e. 93.75% of the total) while annual production will drop to 164,000 BTC per year. Bitcoin’s S2F will then explode to 120. The S2F ratio will mean that it takes 120 years to double the stock of BTC.
At the time of the next halving, the ratio will soar to 248. In short, the halving halving the number of mined bitcoins, the S2F doubles every 4 years. For comparison, we still have not reached the peak of gold extraction …
What does the S2F ratio tell us basically?
He tells us above all that since the price depends on supply and demand, the value of bitcoin will ultimately depend only on demand since the supply tends to be fixed (we have already mined nearly 90% of the 21,000 000 of BTC).
However, currently, 3 million wallets are created per week against only ~ 6,300 BTC (6.25 btc per block).
True, there are thousands of cryptocurrencies that also have a fixed money supply. But as we said shortly before, several parameters must be taken into account. Bitcoin is the only truly decentralized and, by extension, truly secure cryptocurrency.
Bitcoin is ultimately based on the inability of humans to get along. The more participants there are (hash rate), the more impossible it becomes to agree to change the rules. Like for example changing the limit of 21,000,000… To put it another way, no shitcoin will be worth as much as bitcoin without having the same hash rate.
From this point of view, it is interesting to compare the hash rates of bitcoin and ethereum.
BTC: 200 EH / s
ETH: 568 TH / s
Bitcoin’s hashrate is 300,000 times that of Ethereum. The scarcity of bitcoin is therefore 300,000 times more certain than the scarcity of Ethereum. And by the way, bitcoin is only worth 20 times more than ethereum. You will draw your own conclusions …
The S2F model’s prediction accuracy does not work on Ethereum or any other cryptocurrency. PlanB told Forbes that they tested ten altcoins, including Ethereum, Litecoin, and BCH, without finding any precise price correlations with their S2Fs.
He did, however, find correlations between their price and bitcoin’s S2F, which is not surprising given that Altcoins are trailing bitcoin. Here again, we invite everyone to think about the relevance of owning a bag…