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Bitcoin is hovering at $ 8,570 after this new indicator

Bitcoin is hovering at $ 8,570 after this new indicator

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Bitcoin’s stock-to-flow model (S2F) describes how long Bitcoin would take at the current production speed to reach the current supply. This creates a metric known as the stock-to-flow ratio.

Since Bitcoin has one of the highest stock-to-flow ratios of any investment, it can be seen as an attractive investment option. This is because it would take a long time for Bitcoin to reach its current circulation supply at the current production rate.

Tested vs. current data

Since the S2F ratio has so far correctly modeled the Bitcoin price, many supporters now believe that a discrepancy between the Bitcoin value predicted by the S2F ratio and its actual price can give an insight into its future course.

Generally, this is based on the assumption that Bitcoin tends to move towards its predicted value. So if the predicted value is higher than its current value, this could be seen as a bullish indicator as Bitcoin would have to appreciate to reach the model price.

The opposite is true if the cryptocurrency is currently valued higher than the model predicts. Unfortunately, analyzing the difference between the current price and the predicted one is time consuming, which is why other tools have been developed for the process.

One way to rationalize this discrepancy is to identify the S2F multiplier. This can be calculated by dividing the price estimated by the S2F model into the current Bitcoin price and then subtracting one from this value.

If this value is negative, Bitcoin can be considered undervalued – while a positive multiple indicates that it is overvalued.

Bitcoin is a bit behind

According to the stock-to-flow multiple bot (@s2fmultiple) on Twitter, Bitcoin currently has a S2F multiple of -0.15 at its last verified price of $ 7,343.16 and a forecast price of $ 8,569.50. As mentioned earlier, this is considered a bullish indicator as Bitcoin is currently lagging behind the model price.

It looks like Bitcoin has shown bullish momentum since January 3, 2020. During this time, the asset has climbed from the low of just over $ 6,900 to its current value of over $ 7,500.

Likewise, his S2F multiple has gradually approached the zero line in the past three days and has risen from -0.21 on January 03 to -0.16 yesterday to -0.15 today.

However, the S2F multiple Twitter bot has always produced a negative S2F multiple since its launch in December 2019. This suggests that the S2F model has consistently overestimated the value of Bitcoin in the past two months. 

With this in mind, no model is perfect – and traders should beware of using such predictions as the basis for their trading decisions.

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