Bitcoin has been on a tear in 2021, and if history is any indication, we should expect bitcoin to continue to run well past the six figures mark, and to $200,000 and beyond in 2021.
The Halving Cycle Dynamic, Programmatic Price Action
While the typical skeptic will shout from the rooftops, “Bitcoin is nothing more than a speculative bubble!” and how there is “No intrinsic value, Bitcoin is just tulips!,” these critics clearly have not done much critical thinking or research on the topic.
To be fair to the naysayers, on the surface it’s hard to understand how anything that has appreciated 711 percent over the past 365 days can have done so without being the beneficiary of mindless speculation or a bubble that is due to burst at any moment. But the answer is simple: Supply is programmatic.
The Bitcoin protocol has programmatic supply issuance, thus price is a function of increasing or diminishing demand to hold the asset, there is no variability on the supply side. This is a monumental breakthrough in monetary economics, and is a concept that is ill understood even by so-called “economic experts.”
Every 210,000 blocks, or about every four years, the Bitcoin protocol undergoes what is called a “Halving,” where the new supply of bitcoin issued into circulation is reduced by 50 percent. This event creates a disequilibrium in the supply and demand dynamics that the market had adjusted to during the previous 210,000 blocks.
Once Is Chance, Twice is Coincidence, Third Time’s A Pattern
While the Halving events are known about into the future, it is quite literally impossible to “price in” a supply shock in regards to a monetary asset.
In March 2019, Plan B, a pseudonymous Twitter user, released a model that quantified the relationship between the relative scarcity of bitcoin and the price. Interestingly enough, he found there was quite a significant correlation between the stock-to-flow ratio of bitcoin, and the price action of the asset.
Stock to flow can be quantified as existing supply of an asset/commodity divided by the annual flow of new supply.
Plan B later revised the model to account for presumably lost coins. The updated model is shown below:
While it cannot be said that the price action is directly attributable to the Halving and the stock-to-flow relationship, it is extremely obvious that this is simply not a statistical anomaly or occurring simply by chance.
The model predicts a rise to $100,000-plus in 2021, and in my opinion that is just the start. As seen in previous Halving cycles, with the Halving serving as a catalyst, the price run up in bitcoin brings about a wave of new adopters and users, who come to understand the monetary attributes of bitcoin. This works in a reflexive cycle. New adopters enter the space competing to acquire bitcoin,…