On 20 June, with the price of bitcoin below $34,000, one analyst made the forecast that the cryptocurrency would rise by $13,000 by the end of August.
On 31 August, the price of bitcoin closed at $47,156 – less than a third of a per cent off the prediction.
The person making the forecast, a pseudonymous Dutch analyst named PlanB, has become renowned for the “astonishing” accuracy of his Stock-to-Flow (S2F) model, which is based on bitcoin’s inbuilt scarcity.
S2F works by dividing an asset’s current supply (stock) by its annual production (flow), which for bitcoin halves roughly every four years. These four-year cycles come with boom and bust price rallies and corrections, with new peaks hit roughly 12 to 18 months after each halving event. The most recent halving took place in May 2020, and bitcoin hit a new record high just 11 months later – but according to the S2F model, this was just the first leg of the rally.
According to PlanB’s “worst case scenario”, bitcoin will return to its all-time high of $64,000 by October, before hitting $98,000 in November and $135,000 in December.
The simplicity of the model means it is prone to being knocked off course by a multitude of external factors, as was demonstrated when bitcoin crashed from $64,000 to below $30,000 between April and June. This correction came amid a devastating mining crackdown in China and Tesla’s announcement to reverse its decision to accept bitcoin.
Yet a massive bounce back, fuelled by positive news like El Salvador’s Bitcoin Law to make it legal tender, has seen the cryptocurrency return above $50,000 and fall back in line with the S2F model.
“All of these forecasts can be destroyed by a black swan event, like a bitcoin ban, Covid escalation, war with China, etc,” PlanB told The Independent.
“ETF approval or El Salvador success spreading or favourable legislation could be the trigger event for the next leg up. And of course, the complete lack of sellers at one point – in my opinion we are approaching that point in a few months.”
There is more than one version of the S2F model, with the first one published in March 2019 – when bitcoin was worth less than $4,000 – predicting a peak of $55,000.
A revised version, released in April 2020, put bitcoin on track for $288,000 this cycle. By the time the next cycle comes around in 2024, bitcoin will be on a trajectory towards $1.1 million.
PlanB’s forecasts continue to be realised “like clockwork”, earning him more than 700,000 followers on Twitter. However, the S2F model is not short of detractors.
Vitalik Buterin, who founded bitcoin’s closest rival in terms of market cap, described the S2F model as an “unfalsifiable” theory, while prominent fund manager Nico Cordeiro dismissed it as “just math-laden marketing”.
Both of these comments were made last June, when bitcoin was struggling to break above $10,000.
Bitcoin’s notorious volatility means it is never more than one bad news story away from suddenly crashing, but PlanB remains bullish and urges people to take a longer term view of the cryptocurrency’s market movements.
“Nobody who bought bitcoin and [held] for four-plus years lost money,” he said. “Ever.”