Bitcoin started like any good story, the first item that was purchased with Bitcoin was a pizza. Today, companies, as big as Tesla, have announced that they would be accepting Bitcoin as a payment method.
With Bitcoin adoption becoming more mainstream every passing day, there is a huge influx of people who are investing money on the cryptocurrency. According to Bloomberg, Bitcoin was the best performing asset of the last decade, and there is no reason why the history would not repeat itself.
While the recent performance of Bitcoin and its growing adoption is a testament to its true potential, there are actually several underlying fundamentals of the cryptocurrency that hint to future parabolic runs.. Some of this can be explained in terms of how bitcoin can go on and replace our current financial system.
But here I would like to touch on a technical aspect of things. I want to discuss the concept of halving and the stock-to-flow ratio. And why the technical indicators suggest that Bitcoin may go on to rise beyond a $100,000 by 2024, and that is a very conservative estimate.
1. THE BITCOIN HALVING
To begin with, it is important to understand what Bitcoin halving actually is. The jest of it is that the way the process of Bitcoin mining works is, as if the miners are finding a lock to a certain key. Or finding a solution to a complex mathematical equation. Every time a miner successfully solves the equation, they get to write the next block in the Bitcoin blockchain.
And more importantly, they get rewarded a certain number of Bitcoins. Now this reward is what keeps the miners going.
In 2012, the miners used to be rewarded a total of 25BTCs every time they were successful. After 4 years, in 2016, the reward became 12.5BTCs. And recently, in 2020 the mining reward was further reduced down to 6.25BTCs. If you notice the pattern, every four years, the mining reward halvens, reducing the number of new Bitcoins generated.
In other words, Bitcoins become scarcer with each halving cycle. And following the simple, supply and demand mechanism, every halving is usually followed by a parabolic run that increases the Bitcoin.
2. THE STOCK-TO-FLOW RATIO
Now that we established the concept of Bitcoin halving, we know that Bitcoin becomes more and more scarce with passing time. Fortunately for us, we live in the age of data. When we have such an important data, we can use it to make predictions about the future. While the stock-to-flow chart has been there for a while, and is used for various assets, the Bitcoin stock-to-flow chart was created by PlanB.
Now you might be asking, what exactly is Stock-to-flow Ratio? Stock-to-flow Ratio is basically the ratio of current availability of a certain resource to its production rate. Now the stock-to-flow ratio has been there since a while for various different assets. However, it was PlanB used this ratio to quantify the value of Bitcoin. And historically, it has been proven to be one of the most reliable indicators so far.
The way it works is that, every time the halving occurs, the production rate significantly reduces, and a result, stock-to-flow ratio jumps. If you look at the pattern that has been followed since almost over a decade, the price ends up following the ratio almost to the tee.
3. THE FUTURE OF BITCOIN
Now that we established the concept of halving and the stock-to-flow ratio, it is important to understand what these indicators are implying. And more importantly, how does the future look like for Bitcoin?
If you look at the chart above, as predicted by the stock-to-flow ratio, the price is going up. So based on that, Bitcoin is most certainly going to hit $100,000 this year. But what is interesting is that if you look at the pattern, not only does the price hits the peak of the stock-to-flow every halving cycle, it actually overshoots above it. And once it overshoots, it comes down and averages out with the stock-to-flow. So, the likelihood is that Bitcoin is going to end up somewhere between a $100,000 to $300,000 before 2024.
So, if you have some side cash, Bitcoin is definitely an asset to consider investing in.