Topic: Stock-to-Flow Model: Modeling Bitcoin's Value with Scarcity - page 14. (Read 5740 times)

Somebody on this forum suggested that I post my recent paper on this thread. Here it is in three formats, jpeg, pdf, and Medium.com. To summarize what the paper is about: make plan B's market value vs S/F regression but with daily data instead of monthly data, then express the market value as a multiple of that regression over time, view it on logarithmic scale, notice some patterns, do some math, apply some critical thinking, figure out the implications...

read the paper:

https://i.redd.it/erghlcv7lqw31.jpg

https://pdfhost.io/v/ym3kQ9QDy_On_the_Convergence_of_Bitcoinpdf.pdf

https://medium.com/@AJC241469/on-the-apparent-convergence-of-bitcoins-usd-market-value-toward-the-stock-to-flow-valuation-model-7a9275ac2206

New Pocast is out:

https://stephanlivera.com/episode/122/


Listening to this pearl.
Will provide transcript of any relevant part.

EDIT: too many good parts. This post is going to be kilometric.

Very nice thread found on Twitter:


https://twitter.com/felipether/status/1188814540802318337?s=21


Lot of elaboration and mumblings  SF model, clarifying many things: do you know the difference between correlation and cointegration?

New addition to real time Stock to Flow graphics:

 Daily updated charts of Bitcoin's stock-to-flow vs price




Pretty standard implementation at first:


There is a nice addition:


So IF the error of the price is distributed as a normal around the model price, it should be inside the dark blue band for the 68% of the time, inside the light blue area for the 95% of the time (learn more here).

I believe in the model. Plan B laid out some great work and his first round of numbers had inaccuracies and he has since corrected them. i.e. His Silver above ground numbers came from Wikipedia and were incorrect. He is looking for inaccuracies just like those of us in this thread. I can't find any fault with his paper on Medium. Sure, there are some tiny nit picks but taken as a whole, and I do mean 99% of what he published, is on the money (as best one can tell from today).

When the halving occurs, the reward is cut in half. The price of one bitcoin must increase for current margins to remain the same.

I think the questions we need to answer are:

• What BTC price point can any mining farm continue to operate at a profit when the reward is cut in half?
• How fast will the price of bitcoin rise after the halving? <- I'm optimistic.

I see miner equipment having to last longer to pay for itself. Margins can't take too big a hit without companies deciding not to mine. Thinking through these problems using common sense tells us unless everyone shuts off their miner, the price is going up and Plan B's model is the best model I've seen to date.

Good work to the OP for bringing this up. I thought it was telling about the price of a liter of milk if bitcoin goes moon. A good way to think about this problem in tangible terms. Inflation of currencies will continue to happen.

Satoshi had time to calculate the genesis block and mine. Some say there were even testnets before the mainnet and before the testnets we have now. So there was probably time before the launch of version 0.1 to crunch some numbers and arrive at 21 million coins. You could run simulations for any number of coins per block, and when block rewards cut in half (or cut in thirds, or percents, or any other reduction.)

With alts, we see devs experimenting with different reward reduction schemes, different block times, and as we are all aware even different maximum block size limits. Litecoin has 2.5 minute blocks ... some coins reduces every month by 3% until it's 3 coins after 3 years (or something like that, that was the old tagcoin, which started at 30 coins reward per block.) We've seen different supplies from 1 million to 100 million, to even 10 billion coins. I even heard of a coin called 42, which would have only 42 coins as its max supply, so everything would practically be a decimal or fraction, probably with the idea that the smallest unit 0.0000 0001 (which would be called a satoshi in bitcoin) would have some higher value, if it's only pair was BTC.

But then exchanges started pairing other alts with other alts as well, not just BTC, so there is the LTC market and the DOGE market. Once your coin dropped below 1 sat, you ended up in the LTC or DOGE markets and your coin would never recover no matter what kind of alt-season happened.

Anyway, at least four variables could have been manipulated (or calculated): average block time, when halving (how many blocks), what reduction, and what genesis block and first reward era started with. It's very possible to have started with 100 BTC as first reward, but then halving happens more often (like every 2 years) and adjust all the others to still end up with 21 million or close to it.

Regarding the stack exchange expalination, I see a circular reference: he could have adjusted block reward to get different total amounts. What if started with 100 BTC as first reward? Or 60? We would end up having different maximum number of bitcoins. So it might be a miscalculation, or a little bit of luck, or a mi tire of the two, but I don’t buy the stack exchange post as an explanation on WHY 21 millions, rather than HOW...
So

No it was arbitrary and coincidental. eg https://thenextweb.com/hardfork/2019/07/08/heres-why-satoshi-nakamoto-set-bitcoin-supply-limit-to-21-million/

Actually you know the total amount of bitcoin (21,000,000) was engineered regarding the total world M2: if the bitcoin was successful 21 million bitcoin would equal the total capitalisation of major fiat money, with a Satoshi worth 1 cent of usd (minimal practical unit of account).
You had to have great minds to think about this 10 years ago.

I was just reading an old post from Hal Finney, and even at bitcoin's inception (version 0.1) he already thought that bitcoin could be worth $10 million. Per coin. That was 10 years ago.

So $3m or $4m, might be possible in the next few decades (hopefully sooner, but I don't mind if it takes longer.)

This interview Might be very interesting.
It’s behind a paywall, but they give 14 days trial free of charge.


https://twitter.com/realvision/status/1185245355061010437
 

This is exactly the reason why I am putting so much effort into studying this model and spreading it: it’s a low hanging fruit, if only you can see it!

I followed the picture and the other numbers from this thread and just extrapolated the years in between. In any case, the next ten years is going to be interesting. Anyone who gets anything between 0.1 to 10 BTC is going to experience some changes if he HODLs until the end.

Now, if only I can accelerate acquiring bitcoins ... that's another story.

I agree with concepts of not to overthink, and to just buy.. in a kind of dollar cost averaging way.. but frequently there does take some thinking to figure out how much you can buy without gambling or overextending yourself.



That is pretty optimistic, and it could happen.  However, the beginning portions of an exponential curve (if we are in one) might look different than later portions.  Furthermore, it is probably a lot more prudent to have a conservative range, including both starting from current price, and even if you are projecting up to also have some conservative numbers.  

By the way, your starting point seems to be both high numbers and using ATH from 2017 as your starting point, so even your numbers should be more conservative if they go from a more reasonable starting point, such as current price, but I will note that if you count every year, a 2x every year still does get us much above $3.2 million in 10 years.


Here's an illustration of a few differing scenarios of varying steady appreciation:


yearly/%  6%      50%      100%        150%
2019      $8,000   $8,000     $8,000        $8,000
2020      $8,480   $12,000     $16,000        $20,000
2021      $8,989   $18,000     $32,000        $50,000
2022      $9,528   $27,000     $64,000        $125,000
2023      $10,100   $40,500     $128,000     $312,500
2024      $10,706   $60,750     $256,000     $781,250
2025      $11,348   $91,125     $512,000     $1,953,125
2026      $12,029   $136,688     $1,024,000  $4,882,813
2027      $12,751   $205,031     $2,048,000  $12,207,0 31
2028      $13,516   $307,547     $4,096,000  $30,517,578

You can see from these charts that even conservative estimates gives you decent returns, and probably more realistic prediction tables would show a tapering off of the amount of the annual return rather than keeping the annual return as a constant through the next 10-year period.

The model definitely leans to the conservative side. It's limiting in the same way the historic logarithmic trend is. BTC may end up bucking both trends for that reason because they don't account for the possibility that adoption will follow an S curve.

Chances are that price won't keep neatly following these patterns. Once patterns become too obvious, markets begin front running them, so these price dynamics may accelerate over time ahead of the stock-to-flow ratio.

No need to over think it. Just buy and buy until you can't. In 10 years, BTC is worth $3.2m... If it's less, that's still not so bad, but it will probably be higher than what ever price you buy today.

So, did some napkin math and it looks like, more or less, doubling every year.

2020    $50,000.00
2021~2022    $100,000.00
2022~2023    $200,000.00
2024    $400,000.00
2025~2026    $800,000.00
2026~2027    $1,600,000.00
2028    $3,200,000.00

Sure, no worries, not planning buys or sells based on this, just trying to understand the model assumptions and bounds.

Correct.
Of course all due and usual disclaimers apply.
Not financial advice, DYOR....etc.

So if I understand that correctly then we can bound the table s.t. next halving could see price as low as $25,000 and not quite as high as $150,000?

An image is worth a thousand words.


Twitter link

Every halving multiplies BTCUSD by a factor of 8.


He noted that there is a correlation, a very high correlation, between the Stock to flow ratio and price. Stock is the total of Bitcoin ever mined, flow is the Bitcoin production via flow. This relationship holds since 2009-2012(even before first halving, and still valid today), and never overshoot price of more than 100% (price was neve below 50% of model value) and never underestimated more than 300% (price was never 3 time bigger than model price). So it was a little bit conservative.
If you put model parameters into the SF at halving in May 2020 you get a price of 50,000 BTCUSD. As simple as that.