Bitcoin’s bullish hype is fading, but the stock-to-flow model proposed by PlanB remains relevant, according to an analyst.

Bitcoin's bullish hype is fading, but the stock-to-flow model proposed by PlanB remains relevant, according to an analyst.

The Blockchain Industry: Analyzing Bitcoin’s Price Action and Future Outlook

Introduction

The blockchain industry has experienced significant volatility in recent times, with Bitcoin (BTC) struggling to reclaim its psychologically-important level at $30,000. This article delves into the reasons behind this price action and provides insights into the future outlook for the industry.

Short-Term Holders and Long-Term Investors

Glassnode’s latest report reveals that Bitcoin’s price action in the first half of 2023 was mainly driven by short-term investors. These investors have seen significant profit spikes, with 88% of their supply currently in profit. As a result, they are becoming increasingly likely to sell and take profits.

On the other hand, long-term investors have refrained from selling despite the price surge. The net realized profit/loss metric reflects a noticeable difference in profit booking levels between the bullish phase and the current market conditions. This indicates that long-term holders have maintained their conviction and are not contributing to selling pressure.

Bitcoin Halving and Price Impact

Despite the current price action, many investors and analysts still anticipate a positive impact on price from Bitcoin’s upcoming block reward halving. PlanB’s Stock-to-Flow (S2F) model provides insights into how the halving affects price. According to the model, an asset’s price grows as it becomes scarcer.

The stock-to-flow ratio, calculated by dividing the current stock (total supply) of Bitcoin by the annual flow (new supply), is a key factor. Gold, for example, has a stock-to-flow ratio of around 62, indicating that newly mined coins would take approximately 62 years to acquire the total amount of gold in existence.

Bitcoin’s S2F value reached parity with gold in late 2020, and its current reading stands at 57. However, gold’s price is still significantly higher due to the trust it has built over generations. Bitcoin might need more time before its valuation catches up to gold’s.

While the S2F model was not entirely accurate during the last cycle, an upgraded target of $100,000 has been proposed. Nevertheless, the first version of PlanB’s S2F model from 2019 predicted a Bitcoin price of $55,000 with an S2F value of 50 after the May 2020 halving.

Given the upcoming halving in April 2024, the S2F model suggests that Bitcoin’s price will likely surge after the event. However, historical data indicates that the price usually follows a more gradual pattern, taking longer than four years for the changed stock-to-flow reality to be fully reflected in Bitcoin’s price.

BTC/USD Long-Term Price Analysis

Technically, the BTC/USD pair turned long-term bullish in January 2023 when it broke out above the 200-day moving average. More recently, the 20 and 50 period weekly moving averages staged a bullish cross, further confirming a long-term positive trend.

The first line of defense for buyers is the 20-period weekly moving average at $28,150, followed by the 200-day moving average at $25,940. If short-term holders, who currently hold historically high profit levels, start selling, the price could decline to these support levels. However, given the positive ongoing accumulation and strong conviction among long-term holders, the price should hold these support levels.

Based on historical data, a parabolic bull run is not expected in the immediate future. Instead, the market will likely witness sideways consolidation in a parallel range leading up to the next halving event.

Conclusion

The blockchain industry, particularly the price action of Bitcoin, has been subject to significant fluctuations. Short-term holders are currently sitting on high profit levels and may choose to sell, while long-term investors remain steadfast in their conviction. The upcoming halving event holds the potential to positively impact Bitcoin’s price, although historical data suggests a more gradual pattern. Overall, the industry is expected to experience sideways consolidation in the near term as it heads towards the next halving event.