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The trillion-dollar asset manager Fidelity is scrutinizing a popular and controversial Bitcoin price model.
A recent report from Fidelity Digital Assets analyzes the BTC stock-to-flow ratio, which divides the amount of a commodity in circulation by the amount mined per year.
Using the correlation between an asset’s price and its S2F ratio, the pseudonymous crypto analyst PlanB has predicted that the BTC price will soar to $1 million by 2029.
Although there is a fierce debate on whether the stock-to-flow ratio is an accurate way to forecast Bitcoin’s trajectory, Fidelity says the model is a credible tool for analyzing scarce assets.
The firm says historically, the metric is a sound way to judge whether a given commodity will become a successful store of value.
“Commodities with a stock that is difficult to double due to a low rate of production relative to existing supply have historically served as superior stores of value.
Such commodities are largely used for investment purposes, and occasionally industrial uses.
On the other hand, consumable commodities that are susceptible to large increases in supply, are less effective in storing value.
In the Bitcoin Standard, Saifedean Ammous adapted stock-to-flow to compare bitcoin to commodities used for investment and consumption and the use of the metric has since expanded and even given rise to models based on the ratio.
Gold, the most resilient store of value through the ages, has the highest stock-to-flow ratio, followed by Bitcoin (today) and silver.
Following the recent halving (May 2020), the gap between the gold and Bitcoin ratio compressed.
Bitcoin’s stock-to-flow will eclipse that of gold following the next halving (2024).”
Grayscale echoes Fidelity’s assessment that commodities with high S2F ratios are typically sought after by investors.
The investment giant looks at Bitcoin to illustrate the positive correlation between an asset’s price and its S2F ratio.
“Commodities with high stock-to-flow ratios such as Bitcoin, gold, and silver have historically been utilized as stores of value.”
However, Grayscale cautions that the S2F price model does not guarantee an increase in the asset’s value.
“While it’s true that price has followed this stock-to-flow model with high correlation, the relationship may be spurious and does not take into account the requisite demand for price appreciation.”
In other trending Bitcoin News today:
BLOOMBERG PREDICTS GOLD AT $3K, BITCOIN AT $20K IN CURRENT BULL RUN!
A bullish comment on gold by a top Bloomberg Intelligence analyst could leave Bitcoin in a similar upside spell.
“Central banks essentially printing money to spur inflation is a solid foundation for the benchmark store of value,” McGlone said.
“Gold bottomed at about $700 in 2008 and peaked near $1,900 in 2011. A similar-velocity 2.7x advance from this year’s low-close near $1,470 would approach $4,000 by 2023.”
The analyst said in its June update that the cryptocurrency could hit $20,000 by the end of this year, citing increasingly favorable fundamental and technical factors.
They included its maturity as an asset, followed by its rising futures open interest and more buy-and-hold strategy among institutional investors.
“Bitcoin ended 2019 at about $7,000, near the bottom of its range, favoring a shift toward the peak. Last year, the high was about $14,000, which would translate into almost double in 2020 if rotating within the recent band,” Mr. McGlone explained.
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