Is Bitcoin Now Too Expensive for Retail — and Could It Break the Cycle?

Bitcoin is suffering from diminishing returns. While many view this as a natural sign of maturity, it raises deeper questions about the validity of the so-called Bitcoin cycle theory. Although the Bitcoin network offers abundant, fascinating data, drawing firm statistical conclusions from just three or four cycles is highly questionable.

As we highlighted in our May 10, 2024, report (here), the once-popular stock-to-flow model has long lost credibility after failing to track prices accurately in 2021 — a flaw stemming from an excessive focus on supply while ignoring Bitcoin’s demand-driven nature. Nonetheless, we used a modified version of that model to forecast the bear-market bottom in October 2022 correctly.

Bitcoin closely followed the stock-to-flow model’s projections until the 2021 bull market, when the model predicted a surge above $100,000—a target widely echoed by leading commentators at the time. This same logic now fuels talk of $1 million price targets for the current cycle, as the model would imply. Using a different methodology, we once projected this cycle could push Bitcoin toward $125,000 (see July 2023) —but our understanding of Bitcoin’s cycle dynamics has evolved significantly since then.

Bitcoin - stock-to-flow model projections

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