Stock-to-Flow Model Not Broken, Just Weak Hands Shaken Out: Analyst PlanB

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For the past month, bitcoin has been following the stock market to the downside. On March 12th, things got worse when we were trading around $8,000 only to tank to around $3,700 on spot exchanges and nearly $3,600 on crypto derivatives exchange BitMEX.

Having lost more than 53% of its value in the past two days, Bitcoin is experiencing one of the biggest carnage in its young history. However, since finding a new low in the past year, the market has stabilized.

Bitcoin has already jumped 50% in value and continues to climb higher. At the time of writing, BTC/USD has been trading at $5,200 while managing the daily trading volume of $1.54 billion.

Current market condition looks like a buy the dip opportunity as the market is currently in “extreme fear” with the Crypto fear and Greed Index posting a reading of 10 and following billionaire investor Warren Buffett’s “Be fearful when others are greedy and greedy when others are fearful.”

Massive crisis will hit bitcoin hard, initially

Already the markets were in pain because of the black swan event coronavirus (Covid-19) which has been labeled by the World Health Organization a pandemic. Bitcoin has been making a healthy start of 2020 surging above $10,500 but only to come crashing down. The global economy and markets were hit and bitcoin couldn’t escape from that.

“If there is a massive crisis, in the beginning at least, crypto will crash hard. A lot of the investments that are based on cheap money and disposable income and excess cash, like in every other part of the economy, will dry up,” projected Bitcoin advocate Andreas Antonopoulos in early January, this year.

However, this much volatility resulted in a massive amount of BTC moved on-chain. In blocks 621259 and 621358 over 600,000 BTC and 200,000 BTC were moved respectively. Since the price of bitcoin fell, 10k-100k BTC per block has been moved which is 10x the normal volume.

This plunge also resulted in half of the bitcoin circulating supply, 9.8 million BTC, being in loss, for the first time in over a year.

Bitcoin will be just fine

This has the investors fearful but to some like Wikileaks founder Edward Snowden, it looks like a buy the dip opportunity as there has been too much panic pushing the prices down.

Former equities portfolio manager, Travis Kling who is now running crypto fund Ikigai feels once the dust settles, economic activity resumes, and central banks pumps in trillions of new dollars, “off that bottom, there is no other asset on the planet that will move like Bitcoin.”

“Bitcoin is either antifragile or it isn’t. If it is, by definition it will come out of this stronger than it went in. There is a framework to evaluate “antifragility”. It’s not evaluated haphazardly, but with sound logic. So BTC bulls today are betting that framework is correct,” said Kling.

Macro investor Dan Tapiero, co-founder of Gold Bullion International also says bitcoin will be just fine given that the crypto asset managed to stabilize without the help of central banks and government.

“BITCOINERS: Hearing guys whine that btc is krap, not a hedge, not digital gold, it’s going to zero etc..stfu. Btc is the only true free market in the world. Btc is the only asset that can go down 50% in one day and doesn’t need govt intervention to stabilize. It will be fine,” Tapiero said.

Moreover, the bitcoin price is still very much following the stock-to-flow model.

“Some people think S2F model broke yesterday. Of course it did not. Bitcoin oscillated nicely around model value and stayed well within model bands. The extreme volatility within the model bands shakes out the weak hands. No extreme returns without extreme risk (volatility),” said analyst PlanB.

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