Understanding Stock-to-Flow (S2F)

The Stock-to-Flow model, popularized by PlanB, is a valuation model that uses the ratio of existing supply (stock) to the annual production (flow) of an asset. It’s often used for commodities like gold and, more controversially, for Bitcoin. The underlying theory is that assets with higher scarcity (higher S2F ratios) tend to appreciate over time. S2F and Bitcoin:

• Halving Events: Bitcoin's supply issuance is reduced by half roughly every four years (the "halving"). This directly impacts the "flow" and increases the S2F ratio, theoretically leading to price increases.

• Logarithmic Scale: The S2F model often plots Bitcoin's price against a logarithmic scale, as it tends to exhibit exponential growth over the long term.

• Model Deviation: Bitcoin's price doesn't always perfectly track the S2F model, but the model suggests long-term cyclical trends, with price peaks occurring after halving events. Current Scenario and Technical Analysis:

• Recent Price Action: o Bitcoin has experienced significant volatility. In the last year or so, it has gone through a period of rapid appreciation, followed by a correction and a period of consolidation. o We are currently seeing an increase in price, suggesting a potential bullish trend. o Recent price action suggests a rebound after hitting lower supports. This could be a signal that the selling pressure is weakening and bullish momentum could be building up.

• S2F Model Position: o Currently, Bitcoin's price may be slightly below the S2F model's target line. o Some analysts believe that the market is still early in a post-halving bull market cycle. The previous cycle saw the price peak a year and a half to two years post-halving. o Model Interpretation: Historically, deviations below the S2F line have been seen as opportunities to accumulate Bitcoin, as the model predicts an eventual return to the predicted price level. However, it is important to remember that the price doesn't always adhere perfectly to this model.

• Technical Indicators: o Moving Averages: The 50-day and 200-day simple moving averages are closely watched. A crossover of the 50-day above the 200-day (a "golden cross") is generally considered a bullish signal. Conversely, a "death cross" where the 50-day falls below the 200-day is often bearish. o Relative Strength Index (RSI): The RSI is a momentum indicator. An RSI above 70 usually signals overbought conditions, and below 30 signals oversold conditions. An RSI in the mid-range typically suggests neither overbought nor oversold conditions. o Trading Volume: Volume confirms price action. Increasing volume during rallies strengthens the case for a bullish move. Low volume could indicate less conviction behind the current trend. o Fibonacci Retracement Levels: These levels can help identify areas of support and resistance. Retracements show areas where the price might pull back to after a trend. o Support and Resistance Levels: Identified through historical price action, these levels can act as barriers to price movement, and breakouts above a resistance can signal a bullish move. Possible Scenarios:

• • Bullish Scenario: If Bitcoin breaks out convincingly above key resistance levels on high volume and price is supported by rising moving averages and RSI not showing overbought conditions, and if it tracks the S2F model, a move toward higher prices could be expected.

• • Bearish Scenario: A break down of support, high volume selling, and indicators showing overbought conditions for an extended period can suggest a reversal of trends and further price consolidation. Key Considerations and Caveats:

• • S2F Limitations: The S2F model is not without its critics. Some argue that it is an oversimplification and that Bitcoin's price is influenced by many factors not included in the model.

• • Market Sentiment: Bitcoin is heavily influenced by market sentiment, news, regulatory announcements, and global macroeconomic events. These factors can often have a much larger effect on price than technical analysis alone.

• • Volatility: Bitcoin is a volatile asset. Both bullish and bearish predictions carry risk, and prices can fluctuate wildly.

• • No Guarantees: Past performance and models do not guarantee future results. Technical analysis is not predictive science; it's an approach for identifying potential trading opportunities based on patterns.

• In Conclusion: A technical analysis that takes into account the S2F model and current scenarios would point to a potential for continued upward pressure. However, it's important to approach with caution, considering the limitations of models and the inherent risks of investing in volatile assets like Bitcoin. A combination of both technical and fundamental analysis is recommended, and it’s always wise to do thorough research and consider your own risk tolerance before making any financial decisions.