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Bitcoin’s Stock to Flow Model “Hedge Funds are Buying the Dip.”
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Bitcoin’s Stock to Flow Model “Hedge Funds are Buying the Dip.”

by Erik VonJune 11, 2021

Bitcoin’s Stock to Flow Model (S2F) is not something most focus on. But it is an important indicator of future prices. Life is funny, well unless you are poor and stupid. Which often goes hand and hand. The recent dip has been a long time coming. I myself have been waiting for the perfect May/July summertime pullback for months. Quantitative data pointed to this downturn for 3 months starting in May and ending in July. To me, this pullback was just a matter of time.

To see all the newbies jump into crypto and then jump out and go crazy is pretty much the norm. Seen this back in 2018 and again in 2021. In this article, we will focus on Bitcoin’s Stock to Flow Model. For newbies, this is the easiest way to calm themselves and get some perspective. Stock to flow ratios are used to gauge the scarcity of Bitcoin or other commodities like Gold/Silver. Thus each is a store of value (SOV) and develops through the mining of coins with computers in Bitcoin’s case, or the physical mining of metals as with Gold/Silver.

Below I will detail how to really look at it and how not to as well. Hence, I remind you that it is a projection of where Bitcoin’s future has come from and is headed to…

Stock to Flow Model, what it is and is not…

Bitcoin's Stock to Flow Model
Stock to Flow (S2F)

Bitcoin’s Stock to Flow Model (S2F) is not a true calculation of price based on any real metrics in a sense. Firstly, you have to understand what an S2F model does. It is a projection/estimation based on X the resource, in this case, say Bitcoin, and its Y production rate. The S2F as I like to call it measures this relationship between the two.

Bitcoin’s Stock to Flow Model you will see is often accompanied by the 365-day moving average because the original S2F was done year over year showing annual production of commodities such as gold in the past. Some might change that calculation to longer/shorter or even in tune with Bitcoin’s Halvening events.

The way most people like to view it is as a predictor of future prices. Hence why so many focus on it. In boardrooms across the country, odds are you will see the S2F model being shown at banks, government bodies, and many hedge funds. It is very much attention-grabbing and makes it very simple to say “Hey here is where we expect Bitcoin’s price to be in x amount of time in the future.

Let the Bitcoin Flow!

Stock to Flow Model
Bitcoin’s Stock to Flow Model Flowing

The main benefit of the S2F model is as follows. Firstly, it shows the price flow of BTC on predicted levels in a given period of time. Secondly, it shows the progress historically from when Bitcoin first traded with money. There is no magic to the S2F model, just a simple calculation over time flowing upwards towards ever greener pastures of pure cash $$$.

The scarcity of BTC and its fixed-price amount going out into the future makes it a bit unlike anything else with S2F. The production of a commodity can change in a blink, say if a new gold mine was found. Not with Bitcoin as we know exactly how much of it there will be in the future, from there the demand/supply and adoption is the only unknown variable in the game. S2F is used to understand and follow that out into the future.

Hedge Funds Buying the Dip!

Hedgefunds Buying the Bitcoin Dip
Hedge Fund Managers Buying the BTC dip!

Picture as we show above a fund manager putting together his PowerPoint presentation with the S2F model and even plan B which I will go over soon. He is there getting ready for tomorrow’s meeting with prospective investors from Saudi Arabia’s wealth fund let us say. As an opening, I would imagine the S2F model introduction and the prices that scale past 1 million a bitcoin to over 10 million a bitcoin projected out in the years to come would be attention-grabbing for any prospective client looking to invest in the crypto future.

Hence, this is exactly what is happening all across the globe bit by bit. Thus also making the imbalances seem balanced over time. With prices surging past the lines on Bitcoin’s Stock to Flow Model, or as now hovering below = BUY THE DIP! HODL! Also, the perfect opportunity for bigger money to move Bitcoin from the emotional hands of those listening to all the FUD as of late to those with longer-term ambitions.

As noted in short the flurry of price activity from small orders selling in this last dip is being accumulated. Accumulated by investment houses and funds across the globe, slowly methodically and decisively. They know the future bet and can see the flow of price over time.

Bitcoin’s Stock to Flow Model rest of this year

stock to flow by end of 2021
Bitcoin’s Cycles Repeat

What can we gain for future insights? Bitcoin’s Stock to Flow Model gives us an idea of the future price range. This can be above or below as nobody can predict the future. The low end has around $119,000 while the high end has over $322,000 projected by the end of 2021. This is going to set off some fireworks and has a hidden surprise for us all in our opinion 🙂

Cycles repeat themselves maybe not in totality but in it’s harmony from past to present. The rest of 2021 could setoff some major fireworks as many rush to grab as much BTC and crypto as they can!

Bitcoin’s S2F Conclusion…

BTC cycles repeat Mark Twain

Nobody can predict the future is the key take away. But as Mark Twain pointed out long ago “History does not repeat itself, but it does rhyme!” – Mark Twain… Once again we hold this to be true. We don’t have to predict the future. We just need to know the direction and that is easy to see, UP UP UP and AWAY!

S2F is a tool. You don’t have to use it, or even believe in it. Numbers don’t care 😉 That is a universal truth we often forget. We think our ideas and thoughts influence so much. When in reality the truth is they happen with or without us. Just like S2F Bitcoin’s Stock to Flow Model… Until next time!

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About The Author
Erik Von
I am a Trader with over 30+ years of experience in most markets. Also an Engineer with a background in theoretical math/CFD modeling. Crypto enthusiast and writer/contributor for SmartOptions…

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