A very friendly looking bitcoin (BTC) model called the “Bitcoin Rainbow” chart would have you believe that bitcoin is seriously undervalued, but what do the fundamentals say?
Bitcoin Rainbow from the Blockchain Center graphic is currently yelling “BUY!” after the BTC price began to break out of the “basically a sell-off” area where it had been consolidating for some time.
Still, the website explains that the team “fitted two curves,” one of which “best fits all bitcoin highs (red) and one that includes only lows (blue).”
Another popular bitcoin model, the stock-to-flow (S2F) model, has arguably more solid foundation, but despite this, the price of BTC has recently ventured far from the value estimated by the model. Based on Glassnode’s S2F deflection modelbitcoin is currently worth only about 0.2 of what it is worth according to the model.
Looking at the S2F exponential chart, the model has historically predicted the bitcoin price with a surprising degree of accuracy.
According to Buy Bitcoin Worldwide S2F graphic, the model currently estimates Bitcoin to be worth $109,500. During a December 2022 interview, the pseudonymous creator of the model, PlanB, suggested that Bitcoin could go higher and that the stock-to-flow model has not yet been invalidated.
PlanB suggested that the original version of the model is the most confident, not the more optimistic later models.
“If we assume the previous model, the original 2019 model is correct, the $55,000 model, then the next halving might drive prices somewhere, and I’m doing a very wide range, some people don’t like it, but somewhere between $100,000 and $1 million.”
Plan B.
The stock-to-flow (S2F) graph is a metric that compares bitcoin’s current stock (the total amount of bitcoin currently in circulation) with its annual production flow (the amount of new bitcoins mined each year). The stock-to-flow relationship estimates the value of bitcoin and other scarce assets.
The graph is based on the idea that the value of an asset is directly proportional to its scarcity.
According to the stock-to-flow model, halving events that occur roughly every four years, when the rate of new bitcoins mined halves, directly affect the bitcoin price. The current stock-flow relationship suggests that Bitcoin is still undervalued and is expected to reach a new all-time high in the future.
While in recent months bitcoin has ventured further from its estimated price into the negative than ever before, its price has ventured much further into the positive in the past. In fact, the aforementioned chart from Glassnode shows that on June 8, 2011, Bitcoin was worth almost 41 times the value estimated by the S2F model.
Looking at other fundamentals, Glassnode data as well shows that bitcoin’s supply percentage was last active five or more years ago just hit a new all-time high of 27.772%, a sign that BTC accumulation for long-term holding continues.
