Steemit Crypto Academy Contest / S15W2 - Stock to Flow Model.
When we see into the world of finance and world of economics then we use a model which is talk to slow model and it is used particularly for those assets that have limitation in their supply and it is a way of measuring a relationship between stock which is existing and total amount of particular cryptocurrency or asset which is available and flow describe the newly produced supply of that particular asset within a given or specified period of time. When we talk about most common use of stock to flow model then it is used for analyzation of commodities like gold silver and even can be used to analyse cryptocurrencies like Bitcoin.
Stock to flow model is very great because it plays a role in providing a framework for the evaluation of particular value of a cryptocurrency based upon its scarcity so it is a way of suggesting that a particular asset that have high stop to flow ratio would tend to have good value because it would become more scarce and would be harder to produce as a result.
I would like to elaborate an example in front of all of you for understanding my concepts and delivering my concepts in more better way!
We can apply stock to flow model to Bitcoin that has gained a significant amount of attention in the previous years. Bitcoin is decentralized currency that operates at blockchain in which there is no Central authority and it has pre-determined maximum supplier of 21 million coins and this is a limited supply that makes Bitcoin more interesting for the analyzation by the use of model of stock to flow.
When I talk about existing stock of Bitcoin then it is revolving around 18.7 million coins and annual flow or we can say that new supply of Bitcoin is around 900 tokens in a day so these are the results that are responsible for high stop to floor ratio compared to other cryptocurrency that also includes gold. So by the implementation of stock to flow model has potential to increase with the passage of time because it is becoming more scarce.
If we say that stock to flow model can give you guarantee about future price predictions then it would not be right to say because this is just like a tool for the analysing and for investors for accessing the potential value of particular asset in which they want to invest because other factors like market demands and technology developments also plays great role in price of asset.
| • | Advantages of stock to flow model |
|---|
- By the implementation and by the use of stock to flow model we can evaluate the scarcity of a particular cryptocurrency which is one of the most advantages thing. This is an advantage that let all the investors to evaluate the scarcity of a particular cryptocurrency and to check the potential in particular cryptocurrency by keeping in mind the supply and demand dynamics.
- Long term value of a particular cryptocurrency can also be evaluated by the implementation of stock to flow model. If a cryptocurrency have limited supply for extended period of time then by keeping in mind it's stock to flow ratio we can evaluate its long term price and value.
- Inflation resistance can also be measured by the use of stock to flow model and if a cryptocurrency has high stock to flow ratio then definitely inflation would be increased in it and if a particular trip to currency would be with low stock to flow ratio then definitely value of that cryptocurrency would be low regarding inflation.
- Price predictions can be judged by investors by the use of this model and in this way they can make their self more prepared for making the informed decisions because it is let them know about the supply and demand dynamics and overall market situation.
| • | Disadvantages of stock to flow model |
|---|
- This is a model which cannot be applied at each and every cryptocurrency and this is a limitation of it because it cannot be applied at those cryptocurrencies which have expanding supplies and variance.
- Stock to flow model is very helpful regarding telling about scarcity of a particular token but it is not keep in consideration other important factors that can impact the price of cryptocurrency which include market demand ,technology advancements and regulatory changes.
- This model rely upon historical data it means that for making the price prediction and for telling the stock to flow ratio it uses the previous data by considering that future would also be the same regarding the supply and demand.
- This model mostly focus on the supply side and don't focus on the demand side mostly which is another disadvantage of it.
• Stock means stored.
First of all we we try to explain with an simple example. Consider a water tub which has continuous inflow through a water tap and also has a small orifice at its bottom for the outflow. Suppose we want to fill the tub to a particular height then we will take the following steps.
- Open the water tab for the sake of inflow
- Minimize or stop the outflow by closing the orifice.
In this example the water level is a stock . We discuss the two levels at a time. First is water level
Second is desired level.
If water level is high and approaching to our desired level then gap is very small. If water level is lower than that if desired level then gap is large.
Now we apply this on the analysis of bitcoin. Availability of bit coin is called stock or in other words we can say that the existing bitcoins is called stock.
Now we discuss the flow. Flow of bitcoin is actually the incoming of bitcoins such that which are freshly mined . If mining of bitcoins is minimized or stopped it will result into the scarcity of bitcoin in the market and it will tend to more looking up . This model of stock flow gives us a tool to predict the price of the bitcoin in the future. This model helps us to understand the the facts that what will happen if bitcoin is available in large amount or if bitcoin is rarer. In both cases it is helpful to understand the future value of bitcoin and also help us to predict the value in the future.
According to the diagram if we see the previous price on sunday and according to the model it could be predicted to $50459 . Value of bitcoin should have reached upto $50459 but the reality is bit different today. We can observe a clear difference between predicted price and real price . It is really wondrous. Today the price is only $38776.
At STEEM Blockchain this model can not be used straightforward or in other words we can say in direct way due to following reasons that I am going to explain.
- As I have talked in first question about the supply of Bitcoin which is fixed so in the same way supply of STEEM and it's inflation is also fixed.As people or users at the platform create quality content then they definitely expect rewards also so they are continuously distributed among the content creators and witnesses that verify the transactions of the people so in this way a kind of dynamic supply at this platform make it very difficult to assess the scarcity of the blockchain just depending upon the stock to flow model.
- Rational market is assumed by stock to flow model where prices are determined and predicted on the basis of just scarcity.But STEEM price depends upon other factors more like adoption of users at the platform ,engagement of the users at the platform as well as development of new projects at the platform so this model in this way becomes less reliable to use and to analyse the price of this token.
- In STEEM blockchain it's value is tied to its use means the more it would be used by the users,the more it would be valuable. But when we talk about Stock to flow model then it most of the time focus on the supply but don't focus on the demand as I have already told thats why in this way also,it becomes less valuable for use in STEEM.
- Stock to flow model more reliance is at historical data but we all know that STEEM is a new tokens and its price history is very limited that why it could be very challenging to measure and to predict the price of this token by the use of stock to flow model that's why in this case also it could not be used by total depending upon it.
I want to invite here
@ripon0630
@adeljose
@harferri
@suboohi
To participate 😊
Bitcoin halving hi stock to flow model ko chla raha hai, stock to flow model sy future prediction hasil krny ka sab sy asan trika hai, stock to flow plan k duara bnaya gya behtreen model hai jo us ny bitcoin k leiy naya tha lekin baki commodities k leiy bi use ho raha hai iski popularity ki wja sy
Your example explained did it all.
This helps me understand well the concept. analyzing better and having a better glue to predicting a cryptocurrency future price indeed made this a great and massive tool use in rating market.
It so proper you identify that it's not perfect and so can't function to all cryptocurrencies as some differs.
Thanks 🙏 for this and I'm looking forward to reading more from you
I have examplified my concepts due to a reason so that you all me understand my concepts more better way and I agree with you that so to flow model is a massive tool for the determination of price predictions but there are some concerns also with this that I have described that's why it is also not directly used at this blockchain Steem.
I am also looking forward to see your entry and to learn from you
It's a pleasure,
I've also made my entry
I would love to go through that entry also
TEAM 5
Congratulations! Your comment has been upvoted through steemcurator08.Thank you 😊
@josepha ❣️
Congratulations on your 8.5 marks.
These marks are really a good achievement for you my friend hope you will work hard from that and make progress to share a lot of informative posts here.
Again love to see your post.
Thanks a lot for your visit....
Yes I agree with you that these are the marks that are kind of encouragement for me and I am very happy for that and it's good that you learn a lot of information from my post
My pleasure my friends ❣️
A bundle of thanks 💐💐
My pleasure 😊
😊
After reading your post, I have benefited a lot. I feel that some of the points you said are very correct.
When the platform releases a new project or holds a new activity, such a project or activity may have never been done before. Whether it is the participation of people or the impact of the activity, there are too many uncertainties, so it cannot be Rely on historical data and laws to determine future trends
You are welcome at my post and I am very happy that you really like some of my points as you have high like It them also as well as I agree with you that when a platform release any new project then whether it is the participation of people or impact of activities there are too many fluctuations occur that's why it's not good to totally historical data
@sahar78 Your detailed explanation of the Stock to Flow Model is enlightening! I appreciate how you've made a complex concept accessible especially with the practical example. Your insights into advantages and disadvantages show a balanced understanding. The analysis of the Bitcoin Stock to Flow graph is insightful. While the model may not directly apply to STEEM your reasoning is sound. Best of luck
Thank you so much I have happy that my practical example I have explained in my post was liked by you as well as you are considering that there was a balance in between pros and cons that I have explain it my course and overall you like also in analysis of my graph and thank you for wishing me the best luck.
Your article provides a comprehensive understanding of how the Stock to Flow model can be a powerful tool in assessing various aspects of a cryptocurrency. Well articulated!
It's good that if you got a comprehensive understanding from my topic stock to flow model that I have explained!!
Upvoted. Thank You for sending some of your rewards to @null. It will make Steem stronger.
Saludos cordiales hermosa amiga sahar78, un gusto para mi saludarte y leer tu participación.
Un método que toma en cuenta muchas variables para realizar sus cálculos y posterior predicción, desde su presentación ha sido muy utilizados por los operadores a largo plazo.
Te deseo muchos éxitos, que tengas un feliz y bbendecido día.
I am happy that you like my participation as well as my predictions in which you can see that actual values and predicted values have a lot of difference due to many designs but overall this model is good for price predictions for all that readers who want to make informed decisions.
Sona I am coming to your post also for visiting your entry