Everyone is debating three popular models to define Bitcoin’s price: stock-to-flow, Hyperwave, and Elliot Wave. These models are also the most criticized.

Practically all price models have both supporters and opponents. No model is 100% precise all the time. They all have strengths and weaknesses, but at the end of the day, they are just theories of how Bitcoin’s price may behave in the mid or long run.

Stock-to-Flow: Ups and Downs

The stock-to-flow (S2F) ratio is one of the most famous and debatable ways to predict Bitcoin’s price. S2F is the relationship between production volumes and current product stock on the market. In Bitcoin terms, it’s a long-term price forecast based on assumptions of coin scarcity. It’s well-known that Bitcoin’s supply is definite and reduces with time, making the currency more and more scarce.

First, the S2F model was used to predict future prices for valuable metals, such as gold. But then it became clear that the scarcity concept is the same for Bitcoin, as well. It has a high value, and the stock is finite.

The S2F ratio takes into account the existing amounts (stock) in relation to the circulation of new supply (flow). For gold, the S2F ratio is based on the assumption that the value of gold will increase over time because it’s impossible to renew the gold supply when it’s drained. Gold will become rarer and rarer and, therefore, more valuable.

There’s one big difference between Bitcoin and valuable metals. We know for sure that the supply of gold is scarce, but we don’t know exactly how much of it is out there. As for Bitcoin, we know the exact figure of supply, and we know that its production is reduced by half with each halving. That means that Bitcoin’s supply is even more limited than that of gold or silver. Following the S2F model, the Bitcoin market value will surpass $1 trillion after the May 2020 halving. This forecast was made based on Bitcoin’s price behavior after the two past halvings.

According to an S2F-approach author, the anticipated Bitcoin market value means that the price for one Bitcoin should be no less than $55,000. It sounds good, but isn’t it too far from reality? It may be too early to judge—the S2F model foresees the price a few years ahead on average.

There are two primary reasons why crypto experts criticize the S2F approach. First, many people wonder whether it’s right to base judgments of Bitcoin’s value on its limited supply alone. Second, numerous professionals consider a linear approach to modeling unpractical, leading to imperfections in forecasts. People believe that it is incorrect to build theories about a good’s market value on its dependence on new supply circulation only. It may sound reasonable, but there are dozens of other indicators and variables that impact value. Moreover, no studies support this theory but just random attempts from individual crypto analysts trying to make cross-references.

Using linear dependence to define the relationship between stock and flow could also lead to inaccurate results because the regression involves many random points that are further translated to the S2F model.
Still, the model has made correct price predictions many times already, so there are no sufficient reasons to call the model invalid. There’s simply not enough proof to support it. No official research shows that the price of gold depends on its supply. But there’s also no proof that the limited supply isn’t the main reason for gold to be a universal carrier of value for as long as we know it has.

Elliott Wave

The Elliott Wave is a widely used technical analysis tool for defining price fluctuations in financial markets. It can determine both rising and decreasing price signals in the form of wave patterns, also called market circles. The theory is based on presumptions that price behavior can be predicted because it goes in similar rising and decreasing waves formed by investor psychology. Generally, the Elliott Wave Theory is used in bearish analyses, showing how a price moves down by layers.

The Elliott Wave Theory is believed to be highly contradictory. Crypto experts call it too biased. The theory adopts the same concepts of crowd psychology during different periods, which results in extremes in both bearish and bullish forecasts.

Critics all over the industry state that the Elliott Wave Theory can’t be used for a decent technical analysis due to its biased nature and because it is based on incorrect considerations. However, thousands of people have managed to earn thousands of dollars by applying the Elliott Wave Theory to their market strategies.

The theory is a toolkit for analyzing the market, and investors can choose to adopt it or not. It is hard to say if the Elliott Wave Theory is completely wrong or ineffective because it sets no exact targets. Investors and traders are free to define for themselves whether they find the Elliott Wave principles trustworthy and reliable or not.

Hyperwave Theory

Hyperwave Theory is a technical tool that projects a pattern showing the direction of price movement. Generally, it’s a chart pattern that characterizes a so-called bubble—an occasion when the market and macroeconomics as a whole take a shift. It gives traders a chance to see where the price will go even before it takes the first steps. The Hyperwave Theory is very similar to the Elliott Wave Theory, but it consists of seven phases and is only applicable to bearish scenarios.

The main disputes around the Hyperwave Theory occur because of its principle that the price for an asset has hit its highest point. Therefore, predictions based on the Hyperwave Theory are often extreme because no one can tell for sure that the price will never be higher. The theory goes that once the price hits its peak, it will soon face a rapid 80–90% drop.

It may sound too general, but it hasn’t it been for occasions when the theory worked its best—like a few years ago when the price of Bitcoin fell head over heels from $18,000 to $3,100. Some investors managed to avoid huge losses during that time only because they backed upon Hyperwave. So, it doesn’t matter how ridiculous or unrealistic the theory may be. If it saved someone’s wallet once, it definitely deserves attention.

Still, following the theory to today, we can see that it calls for Bitcoin’s price to hover around $1,000, which means that the Hyperwave Theory is merely a theory that can be used on specific occasions and should not be accepted as an all-around trading strategy.