Bitcoin Stock-to-Flow Deflection Hasn’t Been This Low Since 2010

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Coinmonks

5 min readJun 15, 2021

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Bitcoin has carved its way back to $40,000 amidst a backdrop of on-chain data which shows that the coin stock-to-flow deflection hasn’t been this high since 2010. Meanwhile, the official US Inflation rate hasn’t been this high since 2008.

Let’s dig in.

Inflation Hits Highest Rate since 2008 Outlining the Need For BTC

The US consumer price index (CPI), which measures the prices of certain consumer goods and services, increased by a yearly rate of 5%, hitting the highest level since August 2008, per data from the US Bureau of Labour Statistics.

Last year, the Federal Reserve moved the goal-posts for inflation, allowing inflation to run hotter than usual in order to support the labour market. The move is a notable departure from the prior methods of adjusting targets depending on the underlying economic conditions.

Former US Treasury Secretary Larry Summers raised concerns about the move recently:

“We’re taking very substantial risks on the inflation side……The sense of serenity and complacency being projected by the economic policymakers, that this is all something that can easily be managed, is misplaced.”

Check out the full article here!

Technically speaking

Bitcoin Hits $40,000

BTC/USD trades above $40,000 on approach to the 20-weekly exponential moving average ($43,300). Conquering this moving average on a weekly basis would throw the number one coin back into the midst of a raging bull market, but until then BTC/USD is simply ranging within the parameters defined in previous newsletters.

Ranging price action can go on for much longer than one might think. This comes part and parcel with the unpredictability of events, the known unknowns and unknown unknowns, and should serve as grounds to avoid any departures from reason. Fomo-ing doesn’t normally work.

Still, bitcoin’s real value is worth well above $100,000 per coin, because if central bank printing has no bottom then any bitcoin/fiat currency pair has no top. The question is and has always been ‘when’ not ‘if’ the market will recognise this truism.

While BTC/USD teeters on the edge of bull-market territory, it’s worth considering what might transpire in the event that the 20-weekly EMA is convincingly recaptured.

Assuming typical Fib levels from the $65,000 all time high, then a retracement to the golden pocket (.618 fib level) would place bitcoin at $51,000 again. This is typically the maximum retracement that’s widely acknowledged for a given market bias (i.e., in this case, mid-term bearish arguments can make sense until the .618 Fib level is taken). In my view, the 20-weekly EMA defines bull/bear-markets, but it’s always worth considering what goes on in the mind of someone on the other side of the trade.

If the 20-weekly EMA holds as resistance, then BTC/USD would probably head back towards the pivot, testing the $36,000 level once again, and opening the door to lower targets. We’ll cross this bridge if we get to it.

Still, until the market gives a clearer indication of where it’s likely heading, it’s reasonable to assume that bitcoin is ranging between $43,000 and $30,000 until proven otherwise.

Levels to watch

Reclaim $43,300 on a weekly timeframe suggests a move to $51,000 (.618 fib)
Weekly rejection from $43,300 suggests a move to $36,000

BTC: Stock to flow Deflection Peaks

Meanwhile, on-chain data shows that the stock-to-flow deflection ratio has reached its highest levels ever (since 2010).

The Stock-to-flow deflection model is based off PlanB’s S2F projection. If deflection is greater or equal to one then bitcoin is overvalued. Otherwise, it’s undervalued.

By this calculation, BTC/USD hasn’t been this undervalued since 2010. The negative deflection has never been this high.

This effectively means that a long-term bear market could break the stock-to-flow model, dealing a heavy blow to bitcoiners who swear by its Biblical math.

Will time vindicate PlanB’s prophecy? You know where my money is.

Let’s do this.

Catch you next time.

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