If there's one thing passionate crypto investors and enthusiasts can agree on... I sure as hell haven't heard of it. It's the market's newest asset class, and it's the way of the future, but it's also a topic for big debate.
Take a look at Crypto Twitter and you'll see how vibrant and exciting it is, and you'll also see factions slugging it out in bench-clearing intellectual brawls.
I'm not gonna lie - they can be pretty fun to watch.
Sometimes these debates can impact Bitcoin itself; quite a few of the "forks" it's taken over the years were chain splits caused by real disagreements - Bitcoin Cash and Bitcoin Satoshi's Vision (SV) both come to mind.
I mean, from the very beginning, the big debate was "How is Bitcoin even a thing?" Lots of skeptics - including yours truly - weren't sure how viable it was in the long term. I'd say the skeptics have been proven wrong on that one! After selling some of my gold stash years ago to get into Bitcoin, only to have it skyrocket, I'm a true believer.
But there's one model, which proponents say can be used to predict Bitcoin's price in the long term, that's still clearing the benches today.
I think you're going to be hearing a lot about it in the future, so I'm going to lay it out for you...
The Bitcoin Stock-to-Flow Model
Gold is a good place to start. Reliable numbers show that, as of the end of 2021, around 205,238 metric tons have been mined and extracted - and I'm talking over the entire course of human history here.
Just about every kilogram of that haul still exists somewhere, because you can't really destroy gold unless you happen to have a particle accelerator lying around.
So, 205,238 metric tons is the "stock" of gold.
The "flow" is the amount of gold extracted every year, which between 2010 and 2021 averages out to around 2,951 metric tons per year.
Divide the stock (205,238) by the flow (2951), and you get a ratio of 69.5. This means it would take about 69 years and six months of gold mining to replace the existing stock.
From this you can see the gold supply is stable - there's more existing stock than there is annual supply. But it also reveals... gold is scarce, and as we all know, scarcity adds up to value.
What does this have to do with Bitcoin? Well, according to some folks a lot.
Back in 2019, an anonymous Bitcoin investor and theoretician, going by the Twitter handle "PlanB" developed something called the "Bitcoin stock-to-flow" model in an online white paper called "Modeling Bitcoin Value with Scarcity."
PlanB was essentially taking the stock-to-flow model applicable to stuff like gold and silver and applying it to Bitcoin - another scarce, finite commodity, albeit a digital one.
Like gold, Bitcoin is valuable and scarce. There's also a finite supply of it, and it's going to get tougher and tougher to bring that (increasingly valuable) supply to market.
Bitcoin's supply is limited to just 21 million coins. That's it. As of today, more than 19 million of those have been mined, which leaves a little less than 2 million Bitcoin left "in the ground."
It's predicted that all those remaining coins will be mined sometime in the first half of the 22nd century, around 2140 or so - by design, the number of Bitcoins minted in every "block" is slashed by half every 210,000 blocks, or about every four years give or take.
Its value, according to the BS2F, would increase in relation to its stock-to-flow ratio.
And so, PlanB submitted their model to the world, and... for a time, it was good. Between 2019 and 2021, it predicted the price of Bitcoin fairly accurately.
There's a hitch, though. PlanB's model is based on Bitcoin scarcity - it's supply, but it turned out to be pretty agnostic of demand, which Economics 101 will tell you is pretty damn important.
Since Bitcoin and just about every other digital asset began selling off in May, its price-predictive powers are looking iffy, at best. According to the model, Bitcoin should be well on its way to $100,000 by now, and yet, as of early June 2022, it's treading water at $30,000.
After all, correlation doesn't imply causation.
It's worth noting PlanB acknowledges this and has since made some tweaks to the model, something they call the "BTC stock-to-flow cross-asset (S2FX)" model. But the tweaks seem to have made the backlash that much fiercer, and the fact remains that a lot of members of the crypto community have "cooled" on the model. And by "cooled on it," I mean they're furious about it and have savagely attacked it. A look at PlanB's Twitter feed isn't pretty.
What "BS2F" Can Still Tell Us Today
For a while, the Bitcoin stock-to-flow model was a reasonable theory - in a world where crazy price predictions are a cottage industry ("Bitcoin will have a $100 quadrillion market cap," anyone?) it made sense... until it broke.
Still, it's worth reading up on. In your life as a Bitcoin investor, you're going to come across a lot of wild predictions and complicated charts. Some will be absolutely bananas, while others will actually prove useful and informative. Just to make it interesting, some of the bananas ideas will seem reasonable at the time. It's important to set your "B.S. detector" correctly and not put all your eggs in one basket.
At the end of the day, the thing that's really going to push Bitcoin into $100,000 territory and beyond is its steadily expanding use case, increasingly wide adoption, and fundamental value and utility.
It's unstoppable in the long run.
When the inevitable happens and the crypto market bounces back, you want to make sure you have a crypto portfolio with the best potential to make you life-changing wealth. That means owning BTC and ETH, certainly, but as I've pointed out here, they aren't the only tokens out there.
In fact, there are a handful of smaller coins that you can get for pennies on the dollar compared to Bitcoin but have a much higher potential for huge gains. Some of the returns we've seen on these blow the stock market and the "mainstream" cryptos away and have the potential to wipe the floor with BTC ten times over in the next year or so.