“Big Misunderstanding” that Bitcoin Price Drop Invalidates S2F Model, Cointegration is Strong

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Bitcoin price is keeping stable above $5,000 for now after falling to $3,850 last week. During this massive sell-off, the daily volume remains strong.

At the time of writing, BTC/USD has been trading around $5,200, down 29.41% in 2020.

However, despite losing this much of its value, Bitcoin price and stock-to-flow cointegration is as strong as ever.

Prominent analyst PlanB who uses S2F to determine Bitcoin price yet again clarified that the cointegration doesn’t break just because the price of the flagship cryptocurrency took a fall.

“There is a big misunderstanding about the stock-to-flow model: that 1 red dot outside the blue bands invalidates the model. That is not true! Red dots have been below the band in 2010,2012,2016,2019 and above in 2011,2013,2017. But cointegration is strong, even now at $5300,” explained PlanB.

Foom 2020 high of just above $10,500 a month back, bitcoin crashed more than 50%, but this crash in BTC price hasn’t broken the S2F model, it is intact which can be checked out at btconometrics.com that has performed Engle-Granger Test.

Does this mean nothing can invalidate the model? No, as the analyst shares, that would render the model useless.

This model will be invalidated “if S2F and BTC price are no longer co-integrated,” PlanB said.

“The cointegrating relation will break if price follows a different direction for a long time,” said founder of BurgerCrypto, a crypto investment consultancy. “Temp dislocations don’t break the model. It breaks in case test statistics clearly show cointegration is falling apart. Not broken until proven otherwise!”

HODLers Strong & Accumulating

Over the last week, bitcoin price took a hard hit, seeing the biggest one-day percentage drop in its young history. The market currently is in fear, however, what’s promising is the violent sell-off last week was because of the short-term sellers.

As Unchained Capital noted, this volatility didn’t come from over five year HODLers rather those that were six months old or even younger.

Bitcoin HODLer Net Position Change has been actually positive during this dump, which Glassnode identifies as long term investors “accumulating discounted BTC and increasing their positions.”

And the fact that the Stock-to-flow model remains as strong as ever is another lift to the investors and HODlers confidence.

As per this model, the Bitcoin price will climb to either $50k or $100k by the end of 2021. The analyst himself sees that the digital asset would overshoot $100k that too before Dec. 2021.

So, why do the constant digs on the model? Some industry commentators don’t want bitcoin investors to be blinded by these big numbers because crypto is an extremely volatile market and everything is possible here as we saw this last week.

Also “I think TA is the reason for most misunderstanding,” said PlanB.

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