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If beauty is in the eye of the Bitholder, you might want to dust the cobwebs off this chart. Crypto and bond markets are stabilizing after last week’s rout as central banks across the world affirm their continued stance on accommodative policy measures. While popular market indicators such as RSI are just a little shy of entering the overbought territory, the stock-to-flow deflection alludes to Bitcoin’s extended undervaluation.
With scarcity driving value as its theoretical underpinning, the stock-to-flow model predicts the future value of Bitcoin based on the ratio between the current circulating supply and the flow of newly minted coins. Historically, the rise and fall in Bitcoin’s valuation often coincide with the cycle of rapid appreciation. If history teaches us anything, the current trend of undervaluation suggests that this round of bullish sentiment is far from over.
Backing Bitcoin: The leading cryptocurrency’s parabolic rise since December 2020 has certainly captured Wall Street’s attention. Not only have big banks started to take a closer look, one even predicted that Bitcoin could become the ‘currency of choice for international trade’, as Citi revealed in a research note on Monday. However, Citi cautiously added that notwithstanding the entrance of institutional investors, the path towards mass adoption is no smooth sailing. Hurdles — including capital efficiency, insurance and custody, and security — remain.
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