Interview: Is the stock-to-flow model defective?

According to cryptanalyst firm ByteTree, the popular stock-to-flow model is not a reliable indicator for long-term Bitcoin price action.

The stock-to-flow model is flawed, according to Charlie Morris, co-founder and CIO of the cryptomontage data firm ByteTree.

According to the popular theory developed by quantitative analyst Plan B, the limited supply of Bitcoin is the key feature that will cause its price to exceed $100,000 in 2021 and beyond.

However, as Morris explained in a recent report, the progressive reduction in new supply will not be enough to drive the price of Bitcoin up. According to Morris, the stock-to-flow theory does not take into account the importance that the decrease in flow (the additional supply of BTC) will have on the price of Bitcoin compared to the stock (supply currently in circulation).

Although it is true that there will be a diminishing supply of freshly mined Bitcoin, Morris pointed out, people will still be able to sell their Bitcoin Optimizer, thus meeting market demand.

With this view, Morris draws a similarity to other scarce assets such as gold: „No one thinks that if you close down gold mining, the price of gold will go sky-high. It’s just not the way it works.

The fundamental factor driving the price of Bitcoin, according to Morris, is the level of activity on the Bitcoin network. In short, an increasing amount of Bitcoin changing hands is what will take the market-leading cryptomoney to new highs.

„The amount of money being transferred on the network … and the price of Bitcoin are highly correlated and always have been,“ he said.

In addition, as Bitcoin matures as an asset, macro factors such as inflation, bond yields and dollar performance will increasingly influence its price.

To watch this full interview, watch it on our Youtube channel – don’t forget to subscribe!