Bitcoin, after setting its new all-time high of $62,000, retreated to $54,000 in several hours and caused a total of $1.74 billion Bitcoin positions to be forced liquidated.
Unlike the last few times, the 6% decline didn’t scare away many investors. Bitcoin believers on Twitter claim this another good opportunity to amass more cheap Bitcoins. Many of them get their confidence from the Stock to Flow (S2F) model of analyst Plan B. The S2F model has made some accurate predictions of the Bitcoin price movement in the past few years.
According to the S2F model, Bitcoin is expected to hit $100K by the end of 2021 and the S2FX (an updated version of S2F) targets $288K.
What is the Stock to Flow model?
The Stock to Flow model measures the abundance of resources. Its ratio is the amount of a particular resource held in reserves divided by the amount of its annual production.
Take Bitcoin as an example, Bitcoin has a capped supply of 21 million, and now about 18 million Bitcoin have been mined, which means there are only less than 3 million Bitcoin to be introduced into circulation. The Bitcoin mining algorithm determines that Bitcoin will go through a process of halving when every 210,000 blocks are mined, and this process takes place roughly every four years. In the S2F model, the total reserve is 21 million and the amount produced annually for this halving cycle is 2.625 million. The higher the ratio, the higher the value of an asset in the long term.
As for the S2F cross-asset (S2FX) model, time is removed and other factors are added to enable the evaluation of other assets such as gold and silver.
Holders Still Hodl Strong
Data from Glassnode shows that long-term holders continue to hodl and purchase more Bitcoin, while more short-term holders sell their Bitcoin since 2020.
Hodling is a smart tactic when dealing with an asset as volatile as Bitcoin. Long-term holders tend to deposit their Bitcoin into offline wallets. While this is a safe way, their deposits don’t generate any income. Some exchanges have launched interest wallets with interest rates varying from 1% to 21%. Take Bexplus interest wallet as an example, it has several annual interest rates and the highest one is 21%. Users can transfer their Bitcoin from the wallet account to the trading account very quickly and they can withdraw their deposits anytime.
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