Cycle Repeat
Projection of Bitcoin's price from today's price based on a repeat of previous cycle.
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Current S/F (10D/463D)
Current Model Price (10D/463D) in USD
Next halving estimate
This page is inspired by Medium article Modeling Bitcoin's Value with Scarcity written by Twitter user PlanB
The 'Stock-to-flow' is a number that shows how many years, at the current production rate, are required to achieve the current stock. The higher the number, the higher the expected price.
Preston Pysh came up with the number of a 463 time span because he believed bitcoin cycles happen in three phases: the Bull Run, the Correction, and the Reversion to the Mean.
* He estimates there are about 200.000 blocks per cycle
* There are three phases per cycle
* and there are ~144 blocks per day
So that math works out to:
As previously mentioned, it is not possible to copy or forge Bitcoins, and the total supply is strictly limited. All transactions are written in blocks, i.e 'the blockchain', and nobody can spend coins that belong to someone else's bitcoin address. A Bitcoin address is akin to a bank account in which you can make deposits, but without providing access to the all important private keys that are required to spend its contents. That is where "scarcity" comes into play. The dictionary definition of scarcity is when something is difficult to come across in nature or in the lab; very similarly to precious metals. Once something becomes scarce enough, it can be used as a money. Stock to flow is defined as a relationship between production and current stock that is out there.
The stock-to-flow is the number that we get when we divide the total stock by yearly production (flow). It tells us how many years are required, at the current production rate, in order to produce what's in the current stock. For example, gold has production rate of around 3.000 metric tonnes and the current stock in whole world is estimated to be 185.000 metric tonnes. If we put that in previous formula:
At the current production rate, we'd need 62 years to dig out all the gold that's currently in circulation. The higher the number–the greater the scarcity. Now, let's see how this relates to Bitcoin. There are around 18 million bitcoins currently in circulation (September 2019) and 1.800 BTC are generated every day (657.000 per year). So, if we put those numbers in stock to flow formula:
That means that we need 27 years of current Bitcoin production in order to produce the current stock. This number is much smaller than gold but bitcoin has something that gold does not - the halvings we discussed earlier. At the time of the next halving event, around may 2020, Bitcoins will be produced at a rate of 900 BTC / day and, by that time, there will be around 18.375.000 coins in circulation. The stock to flow will climb to 52, which is much closer to gold. The following halving, in 2024, will raise that number to 113 and remember - gold has stock to flow of "only" 62 and it does not have halving events. Now contrast Bitcoin's dynamic stock-to-flow with Gold's, who's stock-to-flow of 62 is not likely in increase. As a thought experiment, try to imagine what would happen to the price of gold if were to be halved one day?
In the early 2019 there was an article written about Bitcoin stock to flow model (link below) with mathematical model used to calculate model price during the time:
If we put current Bitcoin stock to flow value (27) into this formula we get value of 10750 USD. This is the price which is indicated by the model. But, there is one more component that we include in this calculation. It is estimated that during first year of bitcoin (2009) Satoshi Nakamoto (Bitcoin creator) mined around 1 million Bitcoins and did not move them until today. It can be debated if those coins might be lost or Satoshi is just waiting still to sell them but the fact is that they are not moving at all ever since. That is why we make correction in stock to flow model calculation. We simply decrease stock amount for 1 million BTC so stock to flow value would be:
And with applied model formula we get model price in USD:
On the chart in this page you can see this formula in action. It is calculating model price from 2010 (because Bitcoin was not traded before that and price information is difficult to obtain) all the way until 2026. On the top of the chart you can select currency (default is USD). See detailed description below.
There are four series on this graph:
There are also 4 cards below the chart:
