Everybody knows that Bitcoin (BTC) is the foundation stone of the crypto world.
It gave birth to an entirely new industry that brought together like-minded individuals, developers, and entrepreneurs who have since built a digital ecosystem that’s constantly evolving and innovating different use cases for blockchain and cryptocurrencies.
Bitcoin is more than just a cryptocurrency; it’s essentially the catalyst that’s leading our world into the digital age, where technology is at the forefront of our everyday lives.
While Bitcoin may not scale or be as technologically capable as some other cryptocurrencies – or future cryptos yet to be released – it still has attributes that no other cryptos have or ever will have, particularly a universally recognizable name and first mover’s advantage. That’s why Bitcoin has value and always will.
Bitcoin’s Scarcity Adds Massively to Its Value
But where Bitcoin’s value really lies is in that it’s the first scarce digital object the world has ever encountered. Unlike silver and gold, Bitcoin can be sent over the internet, radio, satellite, etc.
What’s more, it’s probably one of the most scarce assets in the entire world. Gold and silver can continuously be found and mined, while the set amount of Bitcoin is 21 million. Actually, it’s even less than that, because an estimated 36% of Bitcoin’s circulating supply has already been lost forever.
If gold and silver are lost, they can conceivably be found someday, as they still physically exist; when Bitcoin is lost, it cannot.
Bitcoin’s finite nature and digital scarcity drive its value… but to what extent?
A new prediction model based on Bitcoin’s scarcity and using stock-to-flow to model Bitcoin’s value was created by Bitcoin enthusiast and market analyst PlanB, who shared his in-depth price analysis via a Medium post on March 22.
My first Medium article! Combining all my tweets about modeling bitcoin's value with stock-to-flow, the halving, power laws, fractals and questions & answers to one logical story.https://t.co/n5P5uMCKHT
— plan₿ (@100trillionUSD) March 22, 2019
Bitcoin Could Reach $55,000 After Halving in May 2020
PlanB’s Bitcoin price prediction model hypothesizes that the stock-to-flow (SF) ratio directly affects price discovery based on historical data.
As put by the prominent analyst:
“The hypothesis in this study is that scarcity, as measured by [stock-to-flow], directly drives value… market values tend to be higher when SF is higher. Next step is to collect data and make a statistical model.”
In order to make his Bitcoin price predictions, PlanB used the power law formula (BTC = a*SF^b), with SF as its data input and b as the fractal dimension to predict the possible price of bitcoin.
According to this model, PlanB predicts the value of Bitcoin to be $55,000 after the next Bitcoin halving in May 2020, as its market cap is expected to reach $1 trillion by then.
In regard to the chart seen above, PlanB explained:
“Fitting a linear regression to the data confirms what can be seen with the naked eye: a statistically significant relationship between SF and market value (95% R2, significance of F 2.3E-17, p-Value of slope 2.3E-17). The likelihood that the relationship between SF and market value is caused by chance is close to zero.”
PlanB notes that other factors can affect Bitcoin’s price as well, including hacks, regulations, and other news, which is why all the dots are not on the straight black line. However, he notes that it’s clear that the dominant driving factor of price seems to be scarcity/SF.
Bitcoin Halving Will Reduce Its Supply
As previously reported by IIB, Bitcoin’s next halving in May 2020 will see Bitcoin’s miner block rewards get cut in half from 12.5 BTC to 6.25 BTC per block mined. Therefore, Bitcoin’s scarcity sharply increases, and historically speaking, this leads to a substantial rise in price.
For instance, the last halving occurred in the summer of 2016, which was the time period that Bitcoin really started to take off towards the hyperbolic bull run that led to a $20,000 Bitcoin price in 2017.
As highlighted by PlanB, the next scheduled halving is likely to have the same effect.
“Every halving, bitcoin [stock-to-flow] doubles and market value increases 10x, this is a constant factor.”
Do you agree with PlanB that Bitcoin’s scarcity and stock-to-flow data is the primary driver behind its price? What do you think the price of Bitcoin will be after the 2020 halving? Let us know what you think in the comment section below.
