Bitcoin has staged a huge rally since hitting a low of around $ 40,000 in late September, skyrocketing nearly 35% and easily breaking key technical resistance levels. I have had a heated dispute in one of the numerous crypto rooms in Clubhouse where one of the moderators was somehow compelled to disclose he was an acting European banker. Needless to say that he did his best to divert the conversation from the main theme of price predictions of Bitcoin, all sorts of Bitcoin (and the most promising altcoins) Inspiration Talks, etc. – to start piling up all well-known skeptics’ heavy artillery such as legal and money laundering concerns, as well as imminence of crypto defeat by emerging sovereign digital currencies. Such a set of standard attention distractors would invariably point to the fact that the person was “on duty” there. During the exchange riff, I had to involuntarily mention all of my financial certifications, professional merits, and achievements to back him off a little bit and have him acknowledge the validity of my arguments that he was unwilling to hear in the beginning, calling me a money launderer (which is not, of course – I’d rather call myself an open-minded efficiency seeker).

The increasing body temperature whenever folks discuss cryptos and DeFi is a firm sign of its growing presence in everyone’s life. As investment bank JPMorgan said in a policy brief last Thursday, the rise in the market value of Bitcoin, which recently gloriously returned its market capitalization of more than $1 trillion, is being influenced by a number of factors, including the increased appetite of institutional investors seeking to hedge against inflation. Bitcoin’s growing role as a purported inflation hedge has weakened gold prices, which have remained unchanged for nearly two years, despite rising fears of rising inflation.

“Institutional investors seem to be returning to Bitcoin, perhaps seeing it as a better inflation hedge than gold,” JPMorgan wrote, adding that the old trend of money outflow from gold to Bitcoin has reemerged in recent weeks. According to the note, JPMorgan has proposed three main factors explaining why bitcoin surged from $ 40,000 to about $ 55,000 in a matter of weeks.

1. “Recent assurances from US politicians that they do not intend to follow China’s steps to ban the use or mining of cryptocurrencies.”

2. “The recent rise in popularity of the Lightning Network and second-tier payment solutions, fueled by the adoption of bitcoin in El Salvador.”

3. “Resurgence of inflation concerns among investors has rekindled interest in using bitcoin as a hedge against inflation.” Since gold has failed to provide a reliable hedge against inflation in recent months, investors are taking other measures.

According to the bank, more than $10 billion has gone from gold ETFs since the beginning of the year, and more than $20 billion has come to bitcoin funds. And these flows of funds into bitcoins helped increase its share of the total cryptocurrency market to almost 45% from a low of 41% in mid-September. “Increasing the share of bitcoins is healthy as it is more likely to reflect institutional participation than smaller cryptocurrencies,” JPMorgan wrote.

In contrast, according to Bloomberg, JPMorgan CEO Jamie Dimon said that cryptocurrencies are going to be regulated as anxiety around stablecoins and the asset class more broadly has been growing in Washington.⁣

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● “Blockchain “can” be real, stablecoins “can” be real,” Dimon said at the Institute of International Finance annual membership meeting, held virtually again this year. “No matter what anyone in the room thinks, nor what any libertarian thinks, nor what anyone thinks about it, government’s going to regulate it.”⁣

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● A Treasury Department-led effort to regulate stablecoins favors policing them like lenders, Bloomberg News reported earlier this month. Dimon echoed his long-held views on Bitcoin, but differentiated between his personal view and how New York-based JPMorgan will deal with it.⁣

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While Bitcoin still remains 11.5% below its all-time high of $ 65,000 reached in mid-April, the cryptocurrency is up 90% since the beginning of the year. What we need to revisit now is all Bitcoin price predicting models, of which only the three – learning-based long short-term memory (LSTM) and gated recurrent unit (GRU) to handle the price volatility and so-called stock-to-flow model – deserve our full attention.

The latter one, the so-called stock-to-flow model (SF), created by a pseudonymous Dutch institutional investor “PlanB,” has been widely recognized and whose predictive accuracy has been so far meticulously sharp. True, some rare critics stated that the model shows not much beyond playing with the simple linear equation and extrapolation of the past Bitcoin performance, which is quite a blunt misrepresentation.

The stock-to-flow model is generally applied to natural resources such as gold or silver. The commodities are often referred to as not only “safe havens”, but “store of value” resources which supposedly should retain their value over the long run due to their scarcity — only 21 million Bitcoins will ever exist — and low flow.

The idea is that low supply makes the metals more like “hard money” – contrasted with the dollar. For example, gold is valuable both because new supply (mined gold) is insignificant to the current supply and because it is impossible to replicate the vast stores of gold around the globe.

According to the British Independent, Bitcoin price prediction model remains ‘amazingly accurate with less than 1% error – and forecasts record end to 2021. The stock-to-flow model predicted in June that the cryptocurrency would be $43,000 at the end of September. Bitcoin was trading slightly above $43,150 at that time’.

Here we got current metrics in respect of prices, block rewards, and the true supply from various publicly available sources such as Investing.com, Bitstamp and Messari.io. The starting date for the ongoing calculations related to time represents the date of the first Bitcoin block (genesis block) in 2009.

Pic.1. Illustration of Bitcoin stock-to-flow model

Same as with the value of gold/USD which is the ratio of purchasing power between gold and the USD, the price predicting model works perfectly under the assumption that the very fact of Bitcoin’s self-controlled limited supply works in the same way as one of gold or any other limited supply commodity over time. Some critics mention a “first black swan” that is capable of disrupting the model. Our remark would be acknowledging: yes, it’s a valid point, but with the exception of the word “disruption” being replaced by the phrase “temporary deviation from corresponding predictive metrics”. In other words, the only model’s soft point is the assumption of Bitcoin acting the same way as gold, but NOT about the viability and soundness of the model itself!

When the purchasing power of the dollar decreases, they say that the value of gold/USD increases and vice versa. With relative stability in the purchasing power of gold, it’s easy to find out that roughly 88% of the variability in gold’s value over the last 120 years or so can be explained by the substantial decrease in the purchasing power of the USD, with $1 in 1915 now worth just $0.04. Most people do understand this phenomenon intuitively, so what this model does is just offer the tool of its quantification.

According to the model, Bitcoin will return to its all-time high of $64,000 by the end of this month, before hitting $98,000 in November. December will see it finally reach above $100,000. We’ll see…

As to the former model, we’ll definitely take time to present it in detail in separate writing, since it’s an even more complex approach for its purely narrative description to fit the whole story here.

Pic. 2. Comparison of the actual and predicted Bitcoin price during the training phase of LSTM