Crypto enthusiasts are placing ultra bearish forecasts for bitcoin. The stock to flow model suggests that the move down is out of the norm.
In the last few days, bitcoin has been the subject of bearish calls. Many are calling a drop between $6,000 and $5,500.
Peter Brandt chimed in on the topic. The most followed trader on Twitter said that the head-and-shoulders top for bitcoin doesn’t look valid. But the analyst painted a descending triangle breakdown and indicated a target of $3,905.
While bitcoin appears to be on a technical downtrend, PlanB believes that it is possible for the top cryptocurrency to regain its bullish composure. The analyst’s stock to flow model suggests that the recent selloff is a deviation.
The stock to flow (SF) model is a method used to predict the value of a commodity like gold or silver by determining the asset’s scarcity. The formula to determine scarcity or hardiness is simple. Get the amount of the precious metal in inventory and divide it by the amount mined or produced every year.
Among precious metals, gold has the highest stock to flow ratio. According to BayernLB, gold has an (SF) ratio of 58, which is significantly higher than the SF ratio of silver, palladium and platinum. Based on this model, gold’s market cap should be close to $10 trillion. Currently, the precious metal is worth $8 trillion.
While gold may be ahead of the curve, BayernLB predicts bitcoin’s SF ratio would make tremendous gains in six months. The model indicates that the top cryptocurrency would have a SF ratio of 53 after the May 2020 halving. That will put bitcoin at a $1 trillion market cap.
Using the stock to flow model, PlanB can forecast the price of bitcoin without using technical analysis. So far, the analyst’s model has been right on the money.
Bitcoin’s recent selloff has put the price (red dot) below the SF value (grey line). According to PlanB, bitcoin trading below the SF value a few months below the halving is unusual. Thus, it won’t come as a shock if bitcoin bounced hard and traded above $10,000 before the end of the year.
Even after a brutal dump over the last few weeks, bitcoin is still up by over 94% year-to-date. That’s why Simon Peter, an analyst at eToro, also believes that the cryptocurrency will recover $10,000. The trader told CCN,
In terms of a price target for the end of the year, I feel we’ll get back to a $10,000 level and probably stay around, or just above, that level by the end of December.
The analyst added,
There are a few reasons for this. Firstly, given the fall in price we saw last week, various technical indicators are pointing to an oversold bitcoin market, and thus the opportunity to acquire more of it is arguably more attractive.
Peters also said,
With global currencies potentially losing further purchasing power going forward, over the long term this could be great news for bitcoin. Investors could look to crypto to protect their wealth, which in turn, increases demand. This coupled with a decreasing supply could cause prices to push higher.
It appears that PlanB is not alone in seeing bitcoin trading above $10,000. It’s possible that the move down to $6,500 is nothing but a deviation.
Disclaimer: The above should not be considered trading advice from CCN. The writer owns bitcoin and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.
This article was edited by Sam Bourgi.
Last modified: November 27, 2019 2:17 PM UTC