The selloff has led to extremely oversold conditions, according to the Relative Strength Index indicator. When combined with a Bitcoin valuation substantially below where the highly cited stock-to-flow model predicts, its the ideal setup for an epic rally, according to the theory’s creator.
Understanding Bitcoin’s Stock-to-Flow Model
Because Bitcoin is the first of its kind, and its use case has yet to be proven or implemented at speed or scale worthy of its potential, it is difficult to give the asset a proper valuation, and instead, price discovery is left to the constant tug of war between buyers and sellers.
However, few analysts have attempted to perform fundamental analysis on the crypto asset by looking at the asset’s hard-coded digital scarcity, rather than financial figures and manufacturing reports common across stocks.
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One such model exists, called the stock-to-flow model, and it’s among the most popular and highly cited across the industry, even being the focus of discussion on episodes of CNBC’s Squawk Box.
The stock-to-flow model suggests that due to the upcoming halving that sees the BTC reward miners receive for validating each Bitcoin block slashed in half, it should immediately cause the fair price of Bitcoin to rise exponentially due to the rise in relative scarcity.
Crypto Meme: Can Oversold RSI Ahead of Halving Could Lead to an Epic Rally
However, Bitcoin‘s halving thus far has been nothing but a “meme” at which the crypto community can poke fun of. Jokes about how the halving has done nothing but cut the price of the asset in half, rather than inciting a new bull run, are commonplace.
But when the stock-to-flow model is combined with an oversold Relative Strength Index due to Bitcoin’s record-breaking collapse last month due to the coronavirus chaos, it would be the perfect setup for an epic rally.
#Bitcoin Stock-to-Flow (S2F) & Relative Strength Index (RSI) .. great setup: halving in 28 days and oversold pic.twitter.com/mRg6RORIza
— PlanB (@100trillionUSD) April 14, 2020
When the RSI reaches oversold conditions, assets typically bounce or reverse. A touch of the lowest point of the RSI also often signals a bottom is in.
Related Reading | Crypto Market Cycle: Data Shows Bitcoin On Pace For Post-Halving Bull Run
With a bottom potentially behind us, RSI reaching oversold levels, and a grossly undervalued Bitcoin according to the stock-to-flow model, the recipe for the greatest bull run ever is here.
Especially when combining the coming hyperinflation expected due to the recession and the government’s response to stimulate growth devaluing fiat currencies, Bitcoin could reach valuations of $100,000 or more, as many analysts are predicting.
Featured image from Pixabay