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Bitcoin’s Stock-to-Flow Model Remains Relevant

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Bitcoin’s recent bullish rally to over $31,800, driven by optimism surrounding ETF approvals and legal victories, has faded as the cryptocurrency struggles to reclaim the $30,000 level. Despite the short-term weakness, on-chain movements and empirical data suggest that the bear market may be subsiding.

Glassnode’s report reveals that short-term investors have dominated Bitcoin’s price action in 2023, with 88% of their supply in profit. This cohort is becoming more likely to take profits, potentially leading to further price correction. On the other hand, long-term holders have refrained from selling, signaling a sustained profit regime since April 2022.

As the market navigates choppy accumulation, all eyes are on the upcoming Bitcoin block reward halving, expected to positively impact the price. PlanB’s stock-to-flow (S2F) model, which measures how halvings affect Bitcoin’s value based on scarcity, remains relevant. Bitcoin’s current S2F value is 57, while gold’s is around 62. The model predicts a potential surge in price after the halving event in April 2024.

However, independent market analyst Jesse Myers notes that Bitcoin’s valuation catching up to gold’s may take a generation or more due to trust-building. While PlanB’s S2F model was invalidated during the last cycle, Myers sees the new target of $100,000 as an ambitious upgrade.

The technical analysis indicates a long-term bullish trend since Bitcoin’s breakout above the 200-day moving average in January 2023. The recent bullish cross between the 20- and 50-period weekly moving averages further confirms the positive trend. Buyers must defend support levels at the 20-period weekly MA at $28,150 and the 200-day MA at $25,940, given the risk of selling from short-term holders.

Overall, the market may experience sideways consolidation leading up to the next halving event, as historical data suggests a parabolic bull run is not imminent. The long-term conviction among holders and the stock-to-flow model provide optimism for Bitcoin’s future price movements.

As Bitcoin continues to navigate through price volatility and investor sentiment, market participants eagerly anticipate the next halving event and its potential impact on the cryptocurrency’s value.

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