Are Bitcoin Price Models Still a Reliable Guide for Investors ?

Bitcoin’s (BTC) Stock-to-Flow (S2F) model is flashing one of its most bullish forecasts yet, projecting BTC to reach $222,000. However, a Bitwise analyst has cautioned that Bitcoin’s maturing market may be outgrowing its predictive frameworks.

As Bitcoin’s presence in global finance grows, the reliability of price forecasting models becomes crucial. Once a cornerstone of long-term valuation, the S2F model is now being re-examined as shifting market forces challenge its core assumptions.

Has Bitcoin Outgrown the Stock-to-Flow Model?

For context, the Stock-to-Flow model measures Bitcoin’s value based on scarcity. It compares the existing supply (stock) to the annual new supply (flow). The higher the ratio, the scarcer and supposedly more valuable Bitcoin becomes.

PlanB created the model in 2019. It links Bitcoin’s price increases to its halving events, which reduce new coin issuance every four years. The Stock-to-Flow model forecasts that Bitcoin could climb to $222,000 by 2026.

Over the longer horizon, the model projects a staggering 10-year valuation of $10.9 million per BTC, representing an annualized compound growth rate (CAGR) of roughly 58.3%.

However, André Dragosch, Head of Research for Europe at investment firm Bitwise, suggested that investors should exercise caution when leveraging the S2F model, as it may no longer fully capture the realities of today’s Bitcoin market.

The analyst highlighted Kripfganz’s criticism of the model. In 2020, the economist argued that it is ‘misspecified’ because Bitcoin’s halvings, which double the S2F ratio every four years, make the variable time-dependent rather than stochastic.

Beyond Scarcity: BAERM and Power Law in the Spotlight

In addition to S2F, Dragosch compared two other widely referenced Bitcoin valuation models, pointing to more measured but still bullish trajectories.

The Halving Supply Shock Model, also known as the ‘Bitcoin Autocorrelated Exchange Rate Model’ (BAERM), measures how each Bitcoin halving affects price over time using past price data. It also accounts for the declining impact of supply shocks.

The BAERM model currently estimates Bitcoin’s ‘fair value’ at $159,000, projecting $173,000 by the end of 2025 and $7.59 million over ten years. It has historically shown a strong predictive fit, with around 88% R² since the second halving.

Despite its strengths, BAERM may now be ‘somewhat outdated,’ according to Dragosch, since it does not fully account for the influence of institutional buying or changing adoption trends.