Charlie Morris, the co-founder and chief investment officer of BytTree, released a report questioning and criticizing the popular Bitcoin inventory-to-flow ratio (S2F) model. This model provides a very optimistic forecast for Bitcoin, claiming that the price of Bitcoin should exceed $100,000 in one year.
Morris believes that the price of Bitcoin is not dictated by the supply-side economy. The market must adjust in terms of supply and demand until a new balance is reached. Since the supply of Bitcoin is fixed, the price is determined by the demand side.
Another problem with the model is that it overemphasizes newly mined tokens as if they are the only tokens that can be sold, “but anyone who owns Bitcoin can sell it freely.” He also pointed out that the dynamics of the network have Has changed:
“When the network has a large amount of inventory and the traffic is relatively small, the important thing is the inventory. As the traffic decreases, its impact on market prices becomes less important.”
In addition, he stated that the role of Bitcoin miners has diminished over time, as can be seen from the decline in the ratio of their income to market value:
“Miners used to earn 50% of the market value each year, and they had a great influence on prices. Similarly, they used to account for 68% of the total transaction value, but they have now fallen to 3.9%.”
He admitted that as the maintainers of the network, miners still play an important role, “but their role is diminishing.”
Morris also believes that S2F does not consider the actual use and adoption of Bitcoin. He said: “I think Bitcoin represents a thriving and powerful digital network. It is a technology stock that has nothing to do with profit or CEO holdings. Very high security and wide application. There are many reasons for the rise or fall of Bitcoin prices, but S2F is not one of them.”
