The stock-to-flow ratio for Bitcoin shows the potential for a massive upside increase in the years to come. The chart was first created by Twitter user PlanB in 2012 using current trends at the time and has stayed on course over the past 7 years.

Much to the excitement of Bitcoin users, the model shows a potential price point of over $30,000 by Oct 2020.

All That Glitters Is Bitcoin’s Stock-to-Flow Ratio

Stock-to-flow ratios are used to evaluate the current stock of a commodity against the flow of new production. Put another way, it is the years of inventory relative to annual supply.

Commodities are unique investments because they are not cash yielding. Their only return is through price changes and therefore are tied to real-world use more than speculation.

For most consumable commodities, a high ratio indicates trouble in the market, with more supply than demand. This is based on extremely high usage rates for most commodity items like corn or wheat.

However, with store of value (SoV) commodities like gold, platinum, or silver, a high ratio is indicative of the fact that most gold is not consumed in industrial applications. Instead, the majority is stored as a monetary hedge, thus driving up the stock-to-flow ratio.

Is Bitcoin Digital Gold?

Bitcoin has been referred to as digital gold. One of the main reasons for this is the increasing stock-to-flow ratio. As block rewards decrease, the ratio is only driven higher, increasing the monetary use functionality of Bitcoin, and driving more to be used as an SoV asset.

What’s more, the coming halving cycle, when block rewards are reduced by half, will only further drive down the supply. This will force the stock to flow ratio to increase dramatically. The increases are built into the fabric of how Bitcoin works.

An Accurate Stock-to-Flow Ratio?

While most consider Plan B’s analysis to be relatively accurate, some have challenged the analyst’s presupposition. Several ‘remind me’ requests were made in the post, providing an opportunity for users to see the success of the model in 2020.

Additionally, some have argued that the presuppositions used to create the chart were wrong. They contend that the underlying data set is skewed, and therefore as the prediction nears upper bounds, error increases massively. Also, there’s always the potential for Bitcoin whales.

Regardless of whether the challengers are correct or not, the stock-to-flow chart does indicate an increasing monetary aspect of Bitcoin. Like other precious metals, the digital token is certainly being used as an SoV asset.

Do you think the Bitcoin chart indicates that the price will reach over $30,000 by next year, or is this just wishful thinking from faulty data? Let us know in the comments below!

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Images are courtesy of Twitter, Shutterstock.