22 min
8 Flaws in Bitcoin’s Stock-to-Flow Model Will Doom It WanderLearn: Travel to Transform Your Mind & Life
-
- Places & Travel
Read the article or watch the video about this podcast. It's helpful to see the graphs.
I copied the article and graphs below, but use this link if the images don't pop up in your podcast player.
https://www.youtube.com/watch?v=3k4CTL6fowA
8 Flaws in Bitcoin's Stock-to-Flow Model Will Doom It
I love Bitcoin. Nothing would make me happier than to see one of Plan B's optimistic stock-to-flow (S2F/STF) models become an accurate predictor of Bitcoin's price.
Up until now, there has been a non-spurious relationship between stock-to-flow and bitcoin's price. That's one reason it's such a compelling narrative.
I hope I'm wrong, but, inevitably, BTC's stock-to-flow models will diverge dramatically from their predicted trendline. This article doesn't distinguish between the original S2F model and the latest S2FX model since they share a similar concept.
FYI: I am writing this while the world is counting down the hours to bitcoin's third halving, which will occur on May 12, 2020. BTC costs nearly $9,000.
What is the hypothesis of bitcoin's stock-to-flow model?
Bitcoin, like gold, has a relatively large existing stock compared to the annual flow of new bitcoin mined.
Gold, unlike most metals, sees its total stock increase relatively slowly compared to its existing stockpile. There are about 200,000 tons of gold (the stock) and we mine about 3,000 tons of new gold annually. In other words, gold's flow adds about 1-2.5% to its annual stock.
That results in a stock-to-flow ratio of roughly 65. That means that if halted gold mining today, it would take us to 65 years to consume the existing stock. I've seen lower and higher S2F estimates, so let's assume that 65 is close enough.
Gold's stock to flow is much higher than any other metal, which partly explains why it's so valuable.
Bitcoin is similar to gold in that it also has a high stock-to-flow ratio. The amount of newly mined bitcoins is tiny when compared to the existing stock of bitcoins.
Therefore, the hypothesis is: as bitcoin's stock-to-flow rises, so will its price.
So far, that's exactly what has happened up until the 2020 Halving. Will the pattern continue?
The stock-to-flow tale is such a compelling and powerful narrative that it's become a viral hit among bitcoin fans.
I certainly bought into it enthusiastically.
Stock-to-flow models bitcoin's price predictions
The original stock-to-flow model predicted that BTC will reach $55,000 in 2020. That means BTC needs to jump 7 times in value in the next 7 months.
On April 27, 2020, Plan B presented his BTC S2F Cross Asset (S2FX) Model. The S2FX predicts that by 2024, BTC with be worth an eye-popping $288,000.
This sounds too good to be true.
This article explains why both stock-to-flow models will soon fail.
Since most people who are reading this don't know me, here are a few facts about me in case you're wondering, "Who the hell is this asshole?":
I'm not a newbie. I first bought BTC when it was $250. (My brother bought 10 BTC when it was $1 each - and then got hacked and lost it all).
I accurately predicted BTC's 80% price drop in 2018.
I nailed my 2019 prediction within $33.
I'm a Harvard MBA, so I like to analyze numbers.
8 problems with Plan B's stock-to-flow bitcoin models
For those who don't like to read, you can watch the video:
The list goes from the least important problem to the most important problem.
Problem #8: Not everyone agrees on what is gold's stock-to-flow ratio
Although most quants agree that gold's stock-to-flow ratio is in the 60s, a few believe it's much higher. For example, Philip Barton, a gold analyst, argues that gold's stock to flow is between 400 and 800!
Admittedly, Barton is an outlier. The consensus is that gold's stock-to-flow ranges between 50 and 70. Still, it's worth noting that some believe there is far more stock out there than we realize. How could gold's stock-to-flow ratio be 800?
The main reasoning is that when humans first started collecting gold
Read the article or watch the video about this podcast. It's helpful to see the graphs.
I copied the article and graphs below, but use this link if the images don't pop up in your podcast player.
https://www.youtube.com/watch?v=3k4CTL6fowA
8 Flaws in Bitcoin's Stock-to-Flow Model Will Doom It
I love Bitcoin. Nothing would make me happier than to see one of Plan B's optimistic stock-to-flow (S2F/STF) models become an accurate predictor of Bitcoin's price.
Up until now, there has been a non-spurious relationship between stock-to-flow and bitcoin's price. That's one reason it's such a compelling narrative.
I hope I'm wrong, but, inevitably, BTC's stock-to-flow models will diverge dramatically from their predicted trendline. This article doesn't distinguish between the original S2F model and the latest S2FX model since they share a similar concept.
FYI: I am writing this while the world is counting down the hours to bitcoin's third halving, which will occur on May 12, 2020. BTC costs nearly $9,000.
What is the hypothesis of bitcoin's stock-to-flow model?
Bitcoin, like gold, has a relatively large existing stock compared to the annual flow of new bitcoin mined.
Gold, unlike most metals, sees its total stock increase relatively slowly compared to its existing stockpile. There are about 200,000 tons of gold (the stock) and we mine about 3,000 tons of new gold annually. In other words, gold's flow adds about 1-2.5% to its annual stock.
That results in a stock-to-flow ratio of roughly 65. That means that if halted gold mining today, it would take us to 65 years to consume the existing stock. I've seen lower and higher S2F estimates, so let's assume that 65 is close enough.
Gold's stock to flow is much higher than any other metal, which partly explains why it's so valuable.
Bitcoin is similar to gold in that it also has a high stock-to-flow ratio. The amount of newly mined bitcoins is tiny when compared to the existing stock of bitcoins.
Therefore, the hypothesis is: as bitcoin's stock-to-flow rises, so will its price.
So far, that's exactly what has happened up until the 2020 Halving. Will the pattern continue?
The stock-to-flow tale is such a compelling and powerful narrative that it's become a viral hit among bitcoin fans.
I certainly bought into it enthusiastically.
Stock-to-flow models bitcoin's price predictions
The original stock-to-flow model predicted that BTC will reach $55,000 in 2020. That means BTC needs to jump 7 times in value in the next 7 months.
On April 27, 2020, Plan B presented his BTC S2F Cross Asset (S2FX) Model. The S2FX predicts that by 2024, BTC with be worth an eye-popping $288,000.
This sounds too good to be true.
This article explains why both stock-to-flow models will soon fail.
Since most people who are reading this don't know me, here are a few facts about me in case you're wondering, "Who the hell is this asshole?":
I'm not a newbie. I first bought BTC when it was $250. (My brother bought 10 BTC when it was $1 each - and then got hacked and lost it all).
I accurately predicted BTC's 80% price drop in 2018.
I nailed my 2019 prediction within $33.
I'm a Harvard MBA, so I like to analyze numbers.
8 problems with Plan B's stock-to-flow bitcoin models
For those who don't like to read, you can watch the video:
The list goes from the least important problem to the most important problem.
Problem #8: Not everyone agrees on what is gold's stock-to-flow ratio
Although most quants agree that gold's stock-to-flow ratio is in the 60s, a few believe it's much higher. For example, Philip Barton, a gold analyst, argues that gold's stock to flow is between 400 and 800!
Admittedly, Barton is an outlier. The consensus is that gold's stock-to-flow ranges between 50 and 70. Still, it's worth noting that some believe there is far more stock out there than we realize. How could gold's stock-to-flow ratio be 800?
The main reasoning is that when humans first started collecting gold
22 min