Knowing that the next Bitcoin "halvening" will shrink inflation to half yet again next month (I estimate it'll be the 23rd of May), I was curious to see what's in store for the price of Bitcoin.
Currently, the supply inflation is below 4% per year, according to this pretty chart. This means starting next month it'll be less than 2% per year.
This means it'll be quite better than say, holding Euros, which show a roughly 5% M3 supply increase per year.
I discovered two analyses. I reproduced them and will plot both in the same chart, then explain them briefly. Mail me and ask for the spreadsheet if you want it!
The first prediction fits a straight line to the log-log plot of Bitcoin price vs. time.
There's not a lot to it; it looks accurate, but is quite loose.
Fitting to the extreme points gives a "corridor", which predicts a price of $100k between 2021 and 2028, and a price between $6k and $90k, most likely about $10-20k, at the end of 2020.
I learned about the Stock-to-Flow (S2F) ratio yesterday.
It is defined as Stock (total supply) divided by Flow (newly created supply in the past year).
This is the inverse of inflation, and it computes as the number of years it would take to re-create the supply, at current production.
Investors are attracted to stores of value. Stores of value are investments with high S2F, among other properties.
When inflation is zero, it means the current stock is all there is, and creation has stopped. This means the stock becomes rare, and perhaps more valuable. The simple S2F model predicts an infinite price here (which is not realistic). Still, it may be useful.
For comparison, there are about 190k tons of gold mined, with 2.9k tons mined every year. This means a S2F of ~65.5 years.
Bitcoin's inflation in the past year was about 3.87%, so the S2F was 1/0.0387 ~= 25.8 years. But next month, the S2F will roughly double, to roughly 51.6 years.
What's great about an algorithmic supply is that inflation (and therefore S2F) is dictated, in the long run, by hard rules, making it predictable, and making the investment safer.
Lo and behold, when fitting a power law of Price vs. S2F, you get a good fit.
This model predicts a Bitcoin price of roughly $100k in the next 4 years (May 2020 - May 2024). But my chart only shows about $50k; I guess it depends a lot on the fit.
(John McAfee reneged on eating his own dick, haha).
While these models might not be very precise, they might be accurate. If you want to gamble your money away, do it informed!
Today's price of $7200 strikes me as very cheap compared to what seems to be quite the upside in the next years.
Still, the models diverge quite a lot past 2024. My S2F shows upwards of $500k, while the Time model shows just $100k in 2026. I am very curious what will happen.
In any case, your decisions are your sole responsibility, and not mine.
If you've got any other ideas of evaluating Bitcoin quantitatively, do send them to my e-mail!