• Francisco Hernandez

Stock-to-flow model predicts $55,000 per Bitcoin (BTC) 2-years after Halving. TA suggests otherwise.

Introduction


According to the Bitcoin Block Reward Halving Countdown, the halving is about 33 days away; landing on Wednesday May 13th, 2020. On this day Bitcoin's block reward will be cut from 12.5 to 6.25 BTC per block. It has been speculated that halving events have effects of Bitcoin's price. For example, PlanB (@100trillionUSD) and Nick (@btconometrics) have each written on the effects of the halving on price. In Modeling Bitcoin's Value with Scarcity (2019), PlanB proposes a stock-to-flow (S2F) model which suggests Bitcoin's price could rise up to $55,000 per coin within a couple years of the 2020 halving. Nick retested this model using an alternative statistical tool and found the model to be valid (Nick, 2020). In this article, I look at Bitcoin TA on the monthly time frame. Will the charts suggest a price anywhere near $55,000 a coin? What will the TA suggest the price to be in a couple years? Let's take a look and find out.


Bitcoin halving countdown.


Bollinger Bands and Moving Averages


Before we start, I should mention I am working with a limited data set. I do use alternative sources of data for analysis in the article; I'll mention it when I do. Ok, let's begin. I have 18 monthly candles to work with. Given that 12 months is a whole year, I used a 12-month moving average (MA; yellow) as my long-term indicator. I used a 6-month MA (orange), or half a year, as my mid-term indicator and a quarterly, or 3-month MA (red), as my short-term indicator. The 3-month MA is also the middle Bollinger Band (BB). The upper and lower bands (white) are set to 1.5 standard deviations (SD) away from the 3-month MA.


The current candle is green and is in the lower BB. It appears that the 3-month MA is acting as resistance now. Price just barely broke past the 3-month MA and is hovering just below it. It is possible for price to reach the $7404.9 level to form a support area. From there, resistance area would be the two following MAs, the 6- (i.e., $7,714.18) and 12-month (i.e., $8,566.38). So far there is nothing suggesting that price will approach $55,000.


Bollinger Bands and Moving Averages.


Fibonacci Retracements


The following Fibonacci Retracements have been plotted using the low and high of Bitcoin's (BTC) all-time historical price data from coinmetrics.io. Last month, Bitcoin dipped all the way back down to the 78.6% Fibonacci area at $4,203.12. Bitcoin has since recovered and is facing resistance at the 61.8% Fibonacci area of $7,502.71. After that, the next resistance area is $9,820.29. It doesn't seem to apparent that price will reach $15,000 by 2022, let alone $55,000.


Fibonacci Retracements.


On Balance Volume (OBV)


The OBV has been moving downward since June 2019, making a series of lower lows and lower highs. Bitcoin (BTC) has only recently seen an upward move since December 2019. The OBV looks bearish despite it pointing in an upward direction. The OBV would have to climb all the way up to and past the zero line for me to be bullish. I doubt that it will happen within the next couple months. However, I do expect it to head towards that area.


On Balance Volume.


Chaikin Money Flow (CMF)


The CMF is looking interesting to me. The CMF was in the lower band near the bottom and has made its way up past the zero line. In the last half-year, the CMF dipped down below the zero line and has hovered below it. The CMF has been making a series of higher lows. It made a high in December of 2019. I would like to see the CMF approach this area again and make a higher high before changing my view on it to bullish. However, the formation does make is appear as if increased buying pressure is coming.


Chaikin Money Flow.


Relative Strength Index (RSI)


The RSI is suggesting that Bitcoin (BTC) has been experiencing a sell off since June 2019, peaking in December. A similar story across the previous indicators I looked at. However, the RSI is telling me that Bitcoin hit oversold territory in March 2020. The RSI has since bounced up and is still pointing up. Like the CMF, I want to see the RSI continue upward to be convinced of any significant move upward.


Relative Strength Index.


Conclusion


Bitcoin (BTC) has been on a down trend since June 2019. That all changed at the end of the year and the start of 2020. This was a time Bitcoin saw large gains of about 63% from a low of $6,437. However, slowly creeping up on the world was Coronavirus (COVID-19); spreading from Wuhan, China to all over the world in a matter of a couple months. Naturally, a world pandemic affected all sorts of markets, including Bitcoin. Just last month, Bitcoin hit a yearly low of $3,935.90. Bitcoin's made a decent recovery in the last month, recovering 90% from the yearly low to the current price. However, nothing is suggesting that Bitcoin will be approaching $55,000, let alone its previous all-time-high of about $20,000, in the next couple years.


$55,000 slope and curve line.


For Bitcoin to reach $55,000 in exactly 2 years from this month, price would need to rise daily at a slope of $65.37 a day. That is the straight green line is plotted below. Of course, price doesn't move linearly that way, so I added a curve at the bottom. The curve is set to hit the previous all-time-high around September 2021 and then rise to $55,000 by April 2022. It just doesn't seem very likely for that to happen. It breaks so many TA guidelines and seems unnatural to me. If price did reach those levels, I would expect a huge correction to occur. I am not suggesting that PlanB and Nick's work is wrong; as far as my skills allow, the model appears legitimate to me. I am skeptical of the price call and time frame proposed by the authors. Models behave one way and markets behave another. When taken together, it becomes clear that $55,000 per Bitcoin by April 2022 is unlikely. However, I would be happy to be wrong about that statement.

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