In six weeks the number of Bitcoins produced with each block will be reduced to 6.25. This reward halving has long been predicted to put upward pressure on the price. One analyst is demonstrating the significance of this move by comparing it to other limited commodities.
BITCOIN COMPARED TO PRECIOUS METALS
Analyst PlanB has tweeted a unique chart that looks at Bitcoin’s stock-to-flow ratio. This ratio is a metric that compares the available quantity with the production rate. It is often used with precious metals to predict production profitability.
#Bitcoin halving .. 1 month to go 1) miner flow will halve from 1800 to 900 btc/day2) scarcity (stock-to-flow) will double from 27 to 54 yrs pic.twitter.com/e15AoslgKg
— PlanB (@100trillionUSD) April 1, 2020
This chart ties in with an article written by PlanB last year. The author notes that Bitcoin currently has a stock-to-flow ration of 25 (now 27). This means that at current production rates it would take 27 years to mine the present number in existence. However, the halving will cause this number to roughly double, as production is cut in half.
PlanB has demonstrated that over the past ten years a strikingly clear correlation exists between Bitcoin’s market price and its stock-to-flow ratio. He predicts that should this trend continue, the flagship cryptocurrency could soon have a market cap of USD $1 Trillion, or $55,000 per coin.
Bitcoin is the first scarce digital object the world has ever seen, it is scarce like silver & gold, and can be sent over the internet, radio, satellite etc . . . A statistically significant relationship between stock-to-flow and market value exists. The likelihood that the relationship between stock-to-flow and market value is caused by chance is close to zero.
DEVELOPMENT WILL CHANGE THE BLOCKCHAIN SPACE
The analysis put forward by PlanB is compelling. It reinforces arguments from other analysts that have predicted a big price spike due to the halving. Worth noting, however, is the fact that Bitcoin remains a work in progress. In order to continue to hold value it must continue to achieve mass adoption and fend off competition from rival alt coins.
Importantly, the Lightning Network has yet to gain significant traction and remains very much a work in progress. This second layer scaling solution is a critical link in Bitcoin’s future, and its development will have a significant impact on future usability.
Thus, Bitcoin exists within a much larger blockchain ecosystem. Whereas its hegemony in the space is presently unrivaled, it must continue to advance on a technical level to remain strong. For now, however, data continues to indicate that it will continue to be a sound investment moving forward.
Do you think the Bitcoin halving will change everything next month? Add your thoughts below!
Images via Shutterstock, Twitter @100trillionUSD