Few in the Bitcoin industry have not heard of PlanB. The pseudonymous Bitcoin analyst — who claims to work for a European institution managing a multi-billion-dollar balance sheet — has risen to crypto fame.
Well, he’s the creator of an econometric model predicting that Bitcoin will rise to a fair value. The model is known as the stock-to-flow model, and states that Bitcoin’s scarcity — apparently best represented by the ratio between its above-ground supply (stock) and yearly inflation rate (flow) — is correlated with the market capitalization of the asset.
In fact, PlanB found that per his logarithmic regression, Bitcoin’s value exponentially increases the more scarce BTC gets, with the block reward halving in May expected to push a coin price’s to $55,000 to $100,000.
Although PlanB has mostly been celebrated for his work, some are starting to push back, claiming that the model may be deemed inaccurate.
Analysts Rebut Bitcoin Stock-to-Flow Model
Core to the thesis of the stock-to-flow model is that the inflation rate of Bitcoin, the flow, is known but not factored into market prices in advance, that’s to say, the majority of market participants don’t bet on the halving decreasing block rewards until it happens.
This, according to Hugo Nguyen, a crypto writer and a 2019 resident at Bitcoin development firm Chaincode Labs, is incorrect.
Responding to a post from Coinmetrics’ Nic Carter regarding Bitcoin’s inflation rate, Nguyen wrote that “anyone using the ridiculous S2F price model and consider flow to be effectively non-zero is just silly,” accentuating his belief that halvings will be “anticlimatic and increasingly a historical relic.”
“Thus I consider Bitcoin’s monetary inflation rate to be 0%.”
Yes!! Finally someone said it. Anyone using the ridiculous S2F price model and consider flow to be effectively non-zero is just silly.
In other words, if you believe in that model, the price should be infinity _now_. https://t.co/dXD4ou0u1y
— Hugo Nguyen (@hugohanoi) April 9, 2020
What he’s saying is because halvings can be charted in advance, the real inflation rate of Bitcoin as a form of money is actually zero, meaning the stock-to-flow model is rendered irrelevant as the real flow is zero.
The skepticism surrounding the halving has been echoed by Peter Brandt, a long-time commodities trader.
In a tweet published Mar. 17, the analyst remarked that the Bitcoin halving is “grossly overrated,” explaining that the decrease in BTC inflation is negligible when considering the daily trading volume of the asset.
In fact, he said that the 50% decrease in inflation caused by the halving is “chump change” in the grand scheme of the crypto market, and thus is unlikely to have a tangible impact.
Bitcoin halving = #Grossly_over_rated
The daily trading volume of BTC = the REAL supply of BTC
The daily reduction of mined $BTCs (NEW supply) equals approx 2/100th of 1% of REAL supply
Reduction of NEW supply b/c of halving as % of REAL supply = chump change
— Peter Brandt (@PeterLBrandt) March 17, 2020
The Model Works, Others Assert
Although there are some naysayers, the majority seem to be in agreement with PlanB, claiming the model works.
Case in point: each one of PlanB’s tweets effectively go viral within the crypto space, garnering thousands of likes and hundreds of comments and retweets as investors rush to
Furthermore, there is mathematical evidence to suggest that the model works for Bitcoin, and isn’t just a pure coincidence that Bitcoin’s scarcity can reflect its market capitalization.
Reports shared by a Twitter user going by “Dilution Proof” indicated that using multiple methods of statistical analysis, the model is cointegrated with the price of Bitcoin, rather than it tracing BTC by pure coincidence.
As an analyst confirmed in the reports:
“All of them fail to reject the hypothesis that stock-to-flow is an important non-spurious predictor for the value of Bitcoin. […] We can see stock to flow has a significant long run influence on price.”
Importantly, the report concluded that the model has a long-term impact, meaning that BItcoin will not rally to $100,000 immediately after the halving transpires next month.
Instead, should the model continue to hold true for Bitcoin, it will see a long-term rally, and should reach $100,000 by late-2021 or early-2022, believes in the work of PlanB say.