How Bitcoin’s most popular price prediction models fared in 2020
In a year of extreme volatility, Bitcoin’s pricing models have never had so much to prove. How did they do it?
From lows of $3,600 to historic highs of just over $24,000, 2020 was the year that Bitcoin (BTC) surprised analysts like never before.
With the prediction of its next move becoming increasingly difficult, there’s never been more demand for an accurate Bitcoin pricing model.
Cointelegraph takes a look at how well the business did this year, and what’s worth following as it starts 2021, possibly with the $20,000 as a starting point.
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Stock to Flow
No matter how you look at it, 2020 was the year when Bitcoin’s stock-to-flow pricing model came of age.
Already one of the best known in the industry, the various incarnations of stock to flow followed the BTC/USD to its dramatic annual lows and shot up again.
Best of all, the entire Bitcoin behavior program was still within the models‘ demands, and as of December 19, it’s following stock to flow to the letter (or digit).
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The stock to flow ratio is based on the quantity of an existing asset (the stock) versus the quantity that is added through creation (the flow). In the case of Bitcoin, this ratio is intrinsically linked to block subsidy averages, which reduce the flow by approximately 50% every four years.
As such, with each reduction by half, Bitcoin’s ratio becomes larger, and there’s currently nothing stopping it from reaching and preserving the highest ratio of any known asset.
In terms of price, several stock-to-flow prediction variants have been created by PlanB, the anonymous analyst that has become a household name among Bitcoiners.
Each model requires different price targets to be achieved during the current halving cycle until 2024. The most conservative is $100,000 by the end of 2021.
Despite this year’s criticism of the stock-to-flow ratio, PlanB has defended their model, and their faith was justly rewarded when Bitcoin raised the model’s price exactly last week.
Bitcoin Stock to Flow History Chart Source: Digitalik
Elliott’s Wave Theory
It’s been a year of testing for another popular Bitcoin price prediction tool. Elliott’s Wave Theory, more a price map than a strict set of targets, has had a tough twelve months.
Although not Bitcoin-specific, Elliott Waves offers a multi-step market cycle that aims to follow the ups and downs of an asset.
However, because of its non-specific nature, those predictions are often huge, but Bitcoin has fulfilled them before because of its inherently volatile nature early in its existence.
The year 2020 also produced moments of clarity using the Elliott Waves, but April’s prediction of a further decline to $3,000, which coincides with the 2018 bear market bottom, didn’t come true.
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Finally, one view to consider in the $23,000 is Bitcoin’s position in the so-called Rainbow Chart.
A cheerful BTC/USD log chart, the graph breaks down price levels into a series of buying and selling tips, approximately one for each color of the rainbow.
From red („maximum bubble territory“) to dark blue („basically a fire sale“), these tips tell investors and fans what they can expect from Bitcoin based on its upward or downward direction.
At this point, even at historical highs, the BTC/USD is still rising and is only in the light green band, which the model describes as „still cheap.
As with the stock to flow, the Rainbow chart thus predicts more upside potential for Bitcoin, now that the $20,000 resistance seems firmly a thing of the past.