After Bitcoin’s price failed to meet the Stock to flow model predictions for the end of 2021, concerns have emerged about the validity of the model’s predictions for 2022.
Pseudonymous analyst PlanB, originator of the Bitcoin stock-to-flow model (S2F), has predicted a possible upward movement in bitcoins price. He opined that he did not believe that the $69,000 BTC price was the top for the current halving cycle. To him, a price dropdown for a bear market would put the price of digital assets below its 200 WMA (Weekly moving average ). This has historically never happened, thus supporting the narrative of a possible bullish movement for the market.
S2F’s Prediction Failure Raises Doubts
Following the failure of Bitcoins price to meet predicted values, several analysts have questioned the model’s validity. PlanB had expected Bitcoins price to reach $98000 and $130.000 in November 2021 and the year’s end, respectively. Despite its invalidation, it correctly forecasted August and September prices while coming very close to nailing October’s prediction.
Several reasons have been put forward for its failure, including fears over the emergence of the covid -19 omicron variant. Other causes include concerns of the impending Mt. Gox BTC repayments, the uncertainty of Us regulations and the Chinese ban FUD. However, it should be noted that PlanB had warned that geopolitical crises and other black swan events could derail his S2F model.
The model computes a ratio between an asset’s existing supply and the number of new units entering the market. Because Bitcoin’s mining schedule is reasonably regular, data may be used to determine how scarce BTC is compared to other assets such as gold.
Bitcoin stock-to-flow model chart.
Source: Buybitcoinworldwide.
Some analysts have questioned the validity of the model following its recent failures. Nicholas Merten of Data dash has called for an adjustment to the model. He believes that the bitcoin halving effect on which the model is based has lost its market impact. He shared his sentiments on Twitter. Another analyst, Nico Cordeiro, Chief Investment Officer at Strix Leviathan, believes the S2F model is a chameleon model and is flawed.
Despite these criticisms, PlaB has continued to back the S2F model. In a Twitter thread, he clarified that the prediction failure came from a floor model derived from the overall S2F model. He further claimed that the model has still not been invalidated by the current price action.
Onchain Data Paints Bullish Momentum
As 2021 came to a close, activities in the Bitcoin market slowed, with trade volumes decreasing and prices ranging sideways. The new year has started more or less the same, with BTC trading around the same range as in late November. It has continued to fluctuate between a high of $51,654 and a low of $46,197.
Data released by on-chain analytics provider Glassnode paints a bullish picture in the longer term. A breakdown of the findings shows that more Bitcoins have become illiquid. According to Glassnode, illiquidity occurs when BTC is transferred to a wallet with no spending history. Illiquid supply growth has accelerated, and it now accounts for more than 76 % of the total circulating supply.
Source: Glassnode
Coins transferred to increasingly illiquid wallets at a rate of between 50k and 100k BTC/month through December, indicating an increased possibility of broader accumulation. A clear correlation is seen between illiquid coins and price action. This shows that the current market condition is diverging from the trend.
The increase in the total number of addresses with non-zero balance also supports bullish momentum. The metric can be used to forecast Bitcoin’s long-term demand. Over the last year, a net total of 7.462M non-zero balance wallets were added to the network. This represents a 23.2% year-on-year increase. Since October, over 1.415M of these has been added, accounting for 18.9% of the yearly total. The current ATH of 39.6M non-zero addresses is 40% larger than the peak reached at the end of the 2017 bull market, suggesting that user growth has been sustained over the last five years.
Source: Glassnode
On a general note, the current price action is choppy, but on-chain data points to bullish momentum for Bitcoin. If nothing changes, investors can expect a price surge as the year goes by. However, traders should trade cautiously until the market gets a clear direction in the time being.
Kingsley is a fintech writer with over 4 years of experience covering blockchain and cryptocurrency news. Alo first discovered Bitcoin in 2016 and has been passionate about it ever since, particularly the various ways blockchain can help Africa and the world at large. He desires to give the crypto space a more geographically balanced narrative and serve as a bridge between Africa and the rest of the world. His articles have been featured in Cointelegraph, Beincrypto, and Forkast.news, among others.
