Bitcoin, after roaring to around $60,000 per bitcoin in March, has plateaued in recent weeks.
Now, Wall Street giant BNY Mellon has called the controversial bitcoin stock-to-flow model that predicts bitcoin hitting $100,000 in July “worth understanding” in a new report.
“The stock-to-flow ratio is one of the more interesting valuation concepts and is worth understanding despite its flaws,” BNY Mellon analysts wrote in a report last week. The bank is jumping into the bitcoin game after announcing in February it plans to hold bitcoin and other cryptocurrencies on behalf of its clients.
“In many forms, the stock-to-flow model is elegant (and potentially flawed) in its simplicity,” the bank’s researchers wrote. “It provides that relativity to link bitcoin with a much more established gold market/framework.”
The stock-to-flow pricing model, created by anonymous Twitter user PlanB, who claims to be a Dutch institutional investor with a legal and quantitative finance background that manages around $100 billion in assets and tweets from the handle @100trillionUSD, calculates a ratio based on the existing supply of an asset against how much is entering circulation.
Commodities such as gold–with the largest stock-to-flow ratio of 62, meaning it would take 62 years of gold production to get the current gold stock–have a higher stock-to-flow ratio and are valued by investors for their scarcity. Silver has a stock-to-flow ratio of 22 years for its production to reach the current silver stock.
Bitcoin’s stock-to-flow ratio is now 50 following bitcoin’s third halving earlier this year, which saw the number of bitcoin rewarded to those that maintain the bitcoin network, called miners, cut by half—dropping from 12.5 bitcoin to 6.25.
BNY Mellon’s report looks at several possible models for valuing bitcoin, calling valuation of assets “more art than science.”
“Case in point, the largest financial market is the global currency market. Currencies have been utilized in one form or another for centuries. Yet to this day, there are still several competing models for currency valuation, each with its own strengths and flaws,” the bank’s analysts wrote.
“Ultimately, bitcoin valuation will likely be a combination of several models and be constantly evolving, especially as it gains mainstream acceptance.”
However, the stock-to-flow bitcoin pricing model has been the subject of much debate among the bitcoin community in recent years, with some calling it “absolutely useless.”