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RE: Steemit Crypto Academy Contest / S15W2: Stock to Flow Model
You have written a very good article, and I really liked it. I clarified many concepts from your article. If you want to see my post, please visit link.
I also have a question for you, If BTC halving did not occur, how would the Stock-to-Flow model work?
Thank you so much for your kind words. I'm glad you found my article helpful and that it clarified many concepts for you.
Now, to answer your question about the Stock-to-Flow model and BTC halving. If BTC halving did not occur, it would have a significant impact on how the Stock-to-Flow model works. The halving event, which happens approximately every four years, reduces the rate at which new Bitcoins are produced. This reduction in supply is a key factor in the Stock-to-Flow model's calculations as it represents some part of the permanently removed or lost units.
Hence, without the halving, the model would not accurately reflect the scarcity of Bitcoin over time because if nothing is being removed or lost, it means the supply remains the same day in, day out meaning equal supply from the first day till the last supply. Just like the bucket analogy, if you keep getting constant and equal supply, will that bring about scarcity? No it won't. So, the halving serves as the point of reducing the supply and making it scarce to potentially push the prize up, because when something is scarce, we tend to appreciate them more.
Hence, the reduction in new supply (halving) plays a crucial role in the model's predictions and the understanding of Bitcoin's value. So, the occurrence of BTC halving is an important aspect to consider when using the Stock-to-Flow model.
I hope this helps? If you have any more questions, feel free to ask.
But then again, not all markets or materials that uses the Stock to Flow Model experiences halving. This is where those destroyed or units permanently removed from circulation or the supply comes in.
That is, without BTC halving, the Stock-to-Flow model for Bitcoin would need to be recalculated or adjusted to account for the constant rate of new supply and the model would likely focus more on the existing stock of Bitcoin and its flow in the market (those in circulation), rather than the reduction in supply over time.
However, it's important to note that the Stock-to-Flow model effectiveness is closely tied to the occurrence of BTC halving, so it would rather be inaccurate because the ratios will be more stable and without drastic changes as shown in those periods between the Halvings in the image above or it will practically inapplicable without the halving.