Such variables could include the ongoing shift to electronic payments as well as inflationary spending by central banks in response to the economic destruction brought by the pandemic.
When using this route they care less about the intrinsic value of an asset and instead execute a trading strategy based on opportunities identified through the technical reading of price charts, because price movements represent pure demand, supply and of course investor sentiment and psychology.
An example is Stock-to-Flow , one of the most accurate price prediction models that we have seen in crypto to date.
Although it was popularized in crypto by the pseudonymous PlanB, who described himself to me as a Dutchman in his 40’s with degrees in law and economics who has spent the last 25 years in traditional finance, he did not create S2F.
The third column in the chart above represents the number of years it would take based on current production levels to double the amount of existing supply of an asset.
Looking today, bitcoin’s S2F is much higher.
How does this compare to gold and silver? According to the World Gold Council there was 197,576 , is making up ground.
Despite S2F’s accuracy so far, it is not beyond reproach, and when I interviewed PlanB for this story even he made clear that we should be careful to not make the connection that bitcoin’s issuance schedule and relative scarcity are the only reasons for its rise in value.
Additionally, the simplicity of S2F also makes it unable to take into account exogenous factors and black swan effects such as an attack on the bitcoin network or the acceleration boost that bitcoin received last year from the governmental response to Covid and institutional adoption.
He said that he actually tested ten altcoins, including ethereum, litecoin and bitcoin cash but could not find accurate price correlations with their S2Fs.
S2F has proven to be an accurate and valuable price prediction tool for bitcoin, but its top advocate would tell you himself that it is not omniscient.
Before joining Kraken I served as Chief Operating Officer at the Wall Street Blockchain Alliance, a non-profit trade association dedicated to the comprehensive adoption of cryptocurrencies and blockchain technologies across global markets.