Bitcoin (BTC) had a bumpy ride throughout 2022, along with the rest of the digital asset market. The cryptocurrency began the year exchanging hands ar
Bitcoin (BTC) had a bumpy ride throughout 2022, along with the rest of the digital asset market. The cryptocurrency began the year exchanging hands around $46,700 and is currently trading over 64% down at $16,560 at the time of writing. Consequently, the coin’s market capitalization took a tumble from around $900 billion on Jan. 1, 2022 to end the year at around $320 billion.
While Bitcoin’s drop in price could be attributed to the extraordinary circumstances that the entire cryptocurrency market has been through this year, it is important to reevaluate the 2022 price predictions made by various market entities. One of the most popular predictions was that of analyst PlanB’s Bitcoin Stock-to-Flow (S2F) model.
The S2F model predicted BTC to be at nearly $110,000 as of December 2022. The cryptocurrency finished the year trading at almost 85% off target, which raises questions about the validity of the price model. Stock-to-flow models are generally used to price commodities in the traditional markets, as they account for two variables related to an asset: stock and flow. “Stock” refers to the total existing supply of the asset, and “flow” refers to the new supply of the asset created each year.
Antoni Trenchev, co-founder and managing partner of Nexo — a digital asset management platform — shared with Cointelegraph his thoughts on the validity of the S2F prediction model:
“There are many factors that can influence the price of Bitcoin, including market demand, regulatory changes and technological developments. The S2F model is one tool that can be used to make projections about the future price of Bitcoin, but it is important to keep in mind that it is based on certain assumptions and is not a definitive guide to the future.”
Besides S2F, other models have been used to attempt to predict the price of Bitcoin in the near and distant future. Two popular ones are Elliott Wave Theory and Hyperwave Theory. While both also find their roots in traditional financial markets, their success in predicting the price of BTC has been relatively limited as well.
Price models fail as a new year for Bitcoin ushers in
Considering that Bitcoin only began its journey as an asset just over a decade ago, it is safe to say that the cryptocurrency is still in its nascent stages of price discovery when compared with commodities like gold or silver and other leading technology stocks like Apple and Microsoft. Thus, while there are various BTC price predictions, it is essential to remember the limited availability of cyclical data to factor into these models.
Trenchev added that there are many different models and approaches that can be used to try to predict the price of Bitcoin. Some people use technical analysis, which involves studying historical price and volume data to identify patterns and trends. Others use fundamental analysis, which involves evaluating the underlying factors that can affect an asset’s demand and supply. No single model or approach is universally considered to be the most reliable for predicting the price of Bitcoin, and it is crucial to consider a range of factors when making any investment decisions.
Related: The Three Most Controversial Bitcoin Price Models and What They Predict
Alex McCurry, CEO and co-founder of blockchain solution provider Solidity.io, agrees with Trenchev, telling Cointelegraph, “Bitcoin is a completely unpredictable asset. The only thing one can be certain of when it comes to Bitcoin is the underlying fundamental value of the Bitcoin network and the value it presents to holders and investors. Because of this, one can predict long-term adoption and value in the macroeconomic climate over time, but perfectly timing an exact price is impossible.”
However, one important aspect could change the trends for the price of Bitcoin: utility.
Since Bitcoin is not a smart contract-compatible network, the asset’s utility has been limited to a payment rail. That is slowly beginning to change, with Bitcoin now finding more utility than ever before, supported by the Lightning Network.
LN is a layer-2 payment protocol built on top of the Bitcoin network that enables fast, seamless peer-to-peer transactions. It helps improve the scalability of the network enormously. Most recently, Michael Saylor’s MicroStrategy announced that it plans to release Lightning Network-powered software and solutions in 2023.
MicroStrategy also continues adding Bitcoin to its treasury. Between Nov. 1 and Dec. 21, 2022, the company acquired 2,395 BTC at an average price of $17,181 for a total of $42.8 million. For tax reasons, it sold 704 BTC at $16,776 per coin for a total of $11.8 million on Dec. 22. As a repurchase, the company bought 810 BTC on Dec. 24 for $13.6 million in cash. According to data from BitcoinTreasuries, this puts the firm’s holdings at 132,500 BTC, worth around $2.2…
cointelegraph.com