over 1 year ago • 1 min
The “stock-to-flow ratio” – which estimates the price of bitcoin based on its current supply and the amount that’s produced each year – has historically been considered the single most accurate tool for predicting where the OG crypto’s price will head next. But lately, it’s been pretty off base: it was calling for a price of around $82,000 about a year ago, and now, with bitcoin’s price at $21,000, its estimate is sitting at around $67,000.
As for why it’s been so far off the mark, the model’s critics have been quick to point out its various flaws: it doesn’t take demand for bitcoin into account, it failed to predict bitcoin’s recent tumble, and it hasn’t worked for any other asset. Plus, it was always bound to stop working one day, given that it would predict an infinite price once all 21 million bitcoin are mined.
But as statistician George Box famously wrote, “All models are wrong, but some are useful.” And since so many crypto investors pay attention to it, that’s very true of this one – as long as you take what it’s saying with a generous pinch of salt.
Bitcoin’s price has tumbled 56% so far this year, after all. And although the stock-to-flow model has adjusted bitcoin’s price significantly downward, it’s still over three times higher than the current price, suggesting significant potential upside. Go figure.
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