Topic: Stock-to-Flow Model: Modeling Bitcoin's Value with Scarcity - page 3. (Read 5726 times)

I'll try to describe why I think that S2F has on a first glance worked so well, why I believe that it doesn't explain most factors of the last hype cycles - and some thoughts how it could be changed to replace the constant with a still simple, but not too simplistic demand-based indicator.

First, why did it work so well? We had in 2012/2013 and 2016/2017 two "post-halvening rallys", and 2021 we saw a third major price rally albeit a bit less sharp. S2F proponents argue that these were fueled mostly due to less miner rewards sold on the market. My explanation to that is a little bit different.

The first halvening had indeed a major effect on Bitcoin's available supply. Miners in 2012 were among the biggest sellers in the market, and in that situation the block reward sharply was reduced from 7200 to 3600 per day when only 10 million were mined (so supply inflation fell from ~7% to ~3.5%). So in this particular case, I guess this had really a major impact on the market, although there were also surely other factors (for example, I remember many new exchanges opened in that period, even if MtGox remained dominant).

2016/17 in my opinion it was already different. Markets were much bigger, miners began to leave the major sellers group being replaced by short/mid-term "traders", but the supply reduction was still relevant. There were already expectations of a similar post-halvening rally like in 2013. This imo helped sentiment to change and to get "the bottom in" in 2015 and fueled psychologically the (still moderate) rally in early 2016. Then just after the halvening there was a low-demand period with slightly bearish market, but in 2017 things were heating up again. I see also the shitcoin rally as a major factor here, particularly the ICO frenzy, because of their dependancy on BTC on exchanges.

Now 2020/21 I think that miners lost most of their relevancy in the sellers group. The 2020/21 rally was fueled by other factors in my opinion: first, a mostly psychologic post-halvening expectation; second the coronavirus pandemic, which made people massively register at online trading sites, either of stocks or cryptos, and led to things like the GameStop rally; and third, the "institutional investor" movement, with Tesla and Michael Saylor at the front. The last one was probably the driver for >30K prices. El Salvador came later and is imo the "culprit" for the ATH in the second half of the year.

The coronavirus pandemic's influence is particularly interesting. Before the rally we saw the deep crash to <5000$ levels, after a pretty bullish year 2019. Had this crash and the pandemic not occurred, it is likely the bitcoin hype cycle would have lead, for the first time in its history, to a new ATH before the halvening (in mid-2019, we saw already prices of only ~30% below the ATH, and the +10000 prices continued in early 2020, so March/April 2020 would have been a likely date for that ATH). But it didn't happen, so I'll not go into depth here.

What is my conclusion for a "better" S2F-influenced price model?

First, I would divide the "post-halvening rally effect" into two indicators: "real" supply effect (which can be measured with S2F) and psychological effect, with the first one declining over time, but the second one remaining relatively constant for a longer period.

Second, I would add an "usage" factor, with two components: 1) in times where blocks are not full would be majorly driven by transaction volume, and when blocks are full, by LN node stats. 2) an estimation of exchange users with the crypto.com methodology. Usage is not the same as demand, but has solid economics foundations in the Quantity Theory of Money.

These would be the two main ingredients of the formula. I would do now what PlanB did when he introduced S2F: search for the weight of S2F and "usage" the best approximate to the real price chart, and using this for.

A third ingredient could be "external factors". For example interest rates could be interesting to compare to Bitcoin prices; also the main stock markets. Regulation is another factor but this is already going to much "into the weeds" as you wrote; apart the "usage" factor should already covering these variations.

So this would roughly be my proposal for a price model. Like it or not

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Ah, there's imo absolutely nothing wrong with DCA. I would also recommend this technique to every newbie, but not citing S2F as the main reason but a likely adoption growth.

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I think that happened to most of us. But in my opinion this isn't a proof of Bitcoin's price increase being fueled mainly by supply-side mechanisms.

I am not sure what factors need to exist or not in order to allow stock to flow to apply to various shitcoins, so seems like a big waste of time to be going down such comparison road blindly and trying to use S2F with shitcoins... because I know that bitcoin is distinguishable from shitcoins, but I rarely debate about such nonsense in terms of comparison contrast because it just seems to lead to muddy thinking and also my point about any shitcoin likely needing to have something like 10x improvement over bitcoin in order to really be a possible contender.. and none of them seem even close in that arena.. so just seems a big wast of time to be either talking about various shitcoins or attempting to apply S2F to them... but do what you like... if that floats your boat.



Well if you have a price curve that seems to explain a vast majority of what is going on by focusing on supply and keeping demand as a constant, then why get caught up in trying to figure out if demand might have a better constant calculation.. sure with the passage of time, there might be some need to adjust the demand curve because like  you suggested the constant might work in years 1-12 but might not work so well in years 13 -20 or some other period.. so that might be part of something that might need to be tweaked at some point if it is appearing to not capture the rest of what is happening in the model... do even you are admitting that demand is included.. but you wished that it were NOT assumed to be a constant... or the formula for the constant needs to be tweaked somehow.. no problem.. tweak away.. especially if there ends up being a problem in this halvening period (which again seems to be too early to presume a problem for this halvening period, even though currently the spot price remains right around 2 standard deviations below expected price.



Not only do I imagine, you have said it a few times, already.


You might get caught up in too many weeds by attempting that when a constant seems to be sufficiently enough to project forward...


well, yeah.. if you had ways to simplify the demand curve without getting too caught up into weeds.. that might be helpful.

how about using a constant?  hahahahhaaha


It takes a while for any newbie to learn about the bitcoin space, and of course, each of us has to do what we can do.. and in the beginning it is likely more difficult to sort between good and bad information, but after we have studied the space for more than 100 hours, we start to become more confident and after 1,000 hours even more confident.


Yes.. you have said this, and in markets there are always going to be winners and losers..and I find no reason to change my opinion regarding DCA accumulating into bitcoin is a good idea.. while starting out relatively modestly, building up your accumulation and studying along the way... what else can you do?  except maybe avoid gambling, and you are largely suggesting that a lot of folks are prone to gamble, and sure that is true.. and they get reckt.. but how can you really stop them from gambling unless maybe suggesting another strategy that they might be willing to follow such as DCA accumulating that might cause them to be less inclined towards gambling strategies?


Sure..some people get caught up in various information sources that might not be very objective, but each person has to decide for himself/herself regarding how to structure their learning.. and maybe while they start to invest in bitcoin whether that is $10 per week, $100 per week or some other amount while they are studying the space, figuring out their own situation and attempting to apply their bitcoin allocation to their own circumstances with with various individually tailored criteria/preparation areas that I have already mentioned.


I don't know.. of course we can look at something for its fit with historical patterns to explain what has happened, and then it's projection forward.  So of course the BIGGER question is how much to use such model for projecting forward so maybe it is directionally correct, but not correct in regards to specifics, but even so if you are trying to project forward, then you can attempt to figure out what you are going to do in terms of whether you buy now or you wait... and really there are strategies that you can create for yourself that attempt to prepare you for a variety of directions that bitcoin could take, and if you end up being directionally correct, then does it really matter if you used the right model or not? ..

As I already mentioned, it seems to me that bitcoin is such an asymmetric bet to the upside that it would be foolish to not be making preparations, and in some sense it is a big so what if you place 10%, 30%, 50, 70% or some other number on S2F's predictive value because in the whole scheme of things maybe some of your views might influence you whether you start out investing $10 per week or $100 per week or some other amount, and surely if you are finding way more bullish models that are motivating you, then you may well gravitate towards more aggressive approaches, but still you should be limited within the prudence of your own finances and tempered by ongoing striving to learn along the way, too.


I doubt that letting the perfect be the enemy of the good, is a great approach.. so yeah, each of us has to take responsibility for our own adoption of a model that might end up being wrong or the model is getting tweaked too much that it was never correct. 

Ultimately I agree with you that no model should just be blindly followed merely because it sounds like what you want to hear.



For me, there seems to be some value in bitcoin's incentivizing hashpower from all over the world.  In my 8+ years in bitcoin, I have continued to be fascinated by the whole thing, and I am so surprised that 8 years later, bitcoin has played out quite more bullishly than even my most bullish of scenarios.. but continuing to study and to continue to find facination.. including that bitcoin is about 1,000x better than gold but only less than 1/10 the price.. so that level of bitcoin's value will likely continue to contribute to bitcoin's ongoing appreciating price.. to meet and exceed gold's value in this cycle or the next cycle, and then 10x to 100x will be easier to achieve, than 1,000x  in terms of bitcoin's price.. so for sure, it could take a while for all of this to play out.. even though people keep working on various aspects, network effects keep building and the various BTC price prediction price models help to give us more nuance than merely being directionally correct, but sometimes they can get us in the ballpark of magnitude correctness too.. even if they cannot necessarily get the timeline right with any kind of precision... but maybe in the ballpark, from time to time...including stock to flow.. getting us in the ballpark of the right kind of thinking about this asset class (aka bitcoin)..



Any of us can come up with all kinds of numbers.. and I consider the whole potential addressable market to be a bit more than $1 Quadrillion... so bitcoin is likely to absorb all of that at some point.. and it does not even matter if I am correct with any kind of accuracy, because directionally, it seems to be correct and stock to flow also helps us to see how to get there....even if there might be various ways that S2F gets the timeline wrong..,. and surely, if it takes 50 years, 100 years or 150 years for bitcoin to reach the $1 quadrillion plus market cap size, that seems to be a reasonable working premise to me, even if some folks seem to believe such numbers are nutso.. and I am not even using inflation for my numbers.  I am talking in today's values.. and also presuming that bitcoin is also going to create some more value, so that if there is really ONLY $900 trillion rather than more than $1 quadrillion, those are rounding errors in the sense that more value does end up getting built through paradigm shifting technologies/innovations such as bitcoin.


Fair enough.

I'll limit my answer to the main topics:


1) Using altcoins to check S2F validity: OK, so you're suggesting that Stock-to-Flow only is valid for "industry leaders" (i.e. Bitcoin in the crypto space). In my opinion, this makes the model very specific; you wrote it's "tailored for Bitcoin". We lose then an opportunity to be able to contrast data with more sources to improve the model. (I will not discuss about maximalism/non-maximalism here, because that's a bit off topic.)


2) S2F and "network effect": If I am not wrong, the current S2F formula is the following:

exp(−1,84) * (current supply/block rewards in the last year)

This means that the indicator does only take supply into account, and adds a "magical constant", to make it fit with the price curve.

If we assume that the price of every asset in the world is driven by the relation between supply and demand, this would mean that S2F is basically assuming that we have a constant demand, because the price is completely explained by the supply variation. But I heavily doubt that we have constant demand in Bitcoin. In bear markets, trading volume typically drops, transaction volume often too, and the sinking price itself is obviously also an indicator of shrinking demand. These variations are not part of S2F.

So what S2F is basically assuming is that "Bitcoin's cycles are only explained by supply variations". I think this is wrong, as you can imagine

But if I considered S2F at least a little bit useful as a single indicator of a bigger model - and I would not categorically rule that out! - then I would add a demand indicator to it. A simple "adoption curve" like the S-curve you mention, in my opinion, would be too simple. It doesn't take into account a whole lot of factors which could favour (or not) faster adoption in certain regions and/or worldwide, e.g. regulation, evolution of public opinion, trends, but also technical achievements which lead to new use cases (example: Lightning Network) etc.

The problem is of course that demand is difficult to quantify; but one could build on models like the user estimation which is published regularly by crypto.com (an estimation based on exchange user accounts) and combine it with, for example, the Lightning Network growth and transaction volume.


3) The "harm of the model" discussion: You are of course right that people need to learn themselves and take responsibility for their investment decisions. But how can they learn to take better decisions? Reading different sources and opinions. So to take a decision if taking S2F into account or not, they should read PlanBs arguments and those of his critics. PlanB is pretty bold about his model, it seems, so his critics also have to be bold to be heard, and sometimes a bit harsh.

I don't want to repeat what I wrote before but I think if too many people are drawn, by an uncritical endorsement of S2F by too many people and institutions, into wrong decisions, this won't end well.

What I question regarding to "S2F communication" isn't the fan club it has in this forum and among Bitcoin users in general. This is totally legitimate (as are my criticisms, also as a humble simple forum user). But when I see S2F endorsed by Binance's "academy" (lol) then I become skeptic (a "permabull" model would fit well with their growth expectations - again, fodder for the "bitcoin is a ponzi" guys).


4) S2F weight: The problem is that the price predictions which are so popular as colourful chart pics (by PlanB or their followers) really attribute 100% of the long-term price movement to S2F. Or where are other factors displayed in these charts? As I've mentioned above I don't discard S2F entirely as a factor, but I would give it a weight of less than, let's say, 30%. You may say that it describes hype cycles adequately, but there is at least one exception: the first one, in 2011, unrelated to all halvings. Only explainable by other factors related to demand.


5) "Tweaking" a wrong model infinitely: That's what some scientists tried in the 15/16th century to continue to sustain the geocentric model. You can do that for some time, that's reasonable, but if you exaggerate and a contender offers a better explanation based on completely different assumptions, you risk being looked at in the future as at the "wrong side of history".  (I have to clarify that I don't know currently a complete "contender", but that may change ...)

6) Importance of supply restriction making Bitcoin "sound money" - here we've simply different opinions. IMO the particular kind of supply restriction Bitcoin employs is not it's main feature, but I don't question people who think so.

By the way: My criticism is basically in line with what Daniele Bernardi wrote here in January (discovered the article just now, I may check the "quantitative model" he's proposing alternatively).

Just one little quote at the end:

lol, no. Read again why I wrote that, if you want (it's a reaction on what you wrote in the paragraph I quoted.)

I guess I will read more details about your ideas regarding how the S2F model damages bitcoin below, yet I am having trouble appreciating how a model could really cause damage in any kind of substantial and meaningful damage... unless you are suggesting that it is so convincing that people are going to place more weight upon such projections within such model than it deserves.. and even that.. it is not like the substantive terms of such model is lying to the people... the model is somewhat passive in that sense in terms of presenting guidelines for what could happen.. if people are such idiots as to read too much into such a presentation information.. I don't see how the model would be causing their dumbness and gullibilities... .. I mean a model could use misleading facts or misleading logic, no?..  but we do not have that going on here.. so your overall presentation of the model as damaging seems to misplace how a model should be considered amongst other information for individuals to come to their own determinations, including how much weight to give to such a model.. including that some folks will overweigh the predictability aspects and other people will underweigh the predictive aspects of such model.

It comes off as somewhat patronizing to suggest that the model is flawed because it is too convincing, if that's what you are suggesting.. but hey.. I will read more about your details in regards to the supposed damage to the extent that you might flesh this out a bit more below or to the extent that you might be saying something other than what you have already said.



I still think that you need to be careful with those kinds of granular comparisons of unequal assets that likely do not matter very much in the end.

Yeah.. I don't like when people proclaim that bitcoin is only in the lead because it was first, but there is something to being first in terms of considering how various networking effects evolve, and when we are dealing with something such as money or storage of value, there is likely a bit of natural gravitation towards one standard.. especially if the standard has superior qualities in terms of Gresham's law considerations.

In other words, you may potentially have already heard about the idea that if you want to replace an incumbent you better be something like 10x better than the incumbent, otherwise you do not have any kind of meaningful chance.. beyond potentially temporarily (perhaps 50 years or more?) deceiving others into believing that you have some kind of a chance... in other words, value is going to continue to gravitate into the incumbent, absent if you are able to achieve something like a 10x or more improvement upon the incumbent so that it becomes worthwhile to strive to replace the incumbent rather than the more logical route of improving upon the incumbent.. to the extent that the incumbent might have some capacities to improve.

you are getting into comparing various similar coins, and let's even give the benefit of the doubt that some of them might be several times better than bitcoin, but it still ends up being a BIG SO FUCKING WHAT because they are not even close to 10x better than bitcoin.

I understand that you might be tempted to engage in such comparison because you will proclaim that NOT very much time has passed, and it has ONLY been 13 years, so how could bitcoin gain such an incumbency status? and seems to me that you are failing and refusing to account for the fact that Bitcoin is not just Bitcoin, but there is a lot of building that is going on around bitcoin and there are not really any major flaws in bitcoin, so ancillary actors continue to build upon bitcoin rather than taking chances with some other thing that happens to NOT be 10x better.. they are not going to take chances on such products that are not clearly superior to bitcoin.. even though those various shitcoins get all kinds of hype, they do not convince smart money/people to defect over to them... the smart money and smart people remain in bitcoin...

It is like the analogy that Trace Mayer used to use about the professional football team compared with the junior varsity.. the junior varsity does not have a chance.. they will get crushed.. and continue to get crushed even if they engage in all kinds of marketing.. there is not enough there there in order to actually allow them to compete in any kind of substantive and meaningful way.


Why are we wasting our time with such nonsense comparisons?  There is no reason to believe that Litecoin or Monero should look similar.. the dynamics are different if you are not the leader of the sector...

Bitcoin is the leader of the sector the last I checked.. and there is nothing even close to it.


Over my pay grade as voluntary pundit to study into this.... even though it seems to me that you are going on a tangent and getting into the weeds of questions that do not really get to helping anyone with how much weight that they might want to place upon stock to flow as it is applied to bitcoin.. I have asserted that it is amongst the best of our current models so long as coupled with four year fractal and exponential s-curve adoption based on network effects and Metcalfe principles... so I consider stock to flow to be ONLY part of the consideration - even while it seems that it is the best of the frameworks that we have going.. even if we might have to shift the expectations down on their curve a wee bit..



I think that the answer is that they are not the industry leader, so their lunch is going to get eaten by bitcoin.. but that is kind of a mere speculation on my behalf... and I still doubt that there is any reason to get worked up regarding stock to flow not working with them.. but hey.. you do you.


Seems to me that stock to flow helps to ground the theories about networking effects within a parameter that is tailorized to bitcoin.. otherwise you just arrive at amorphous nothingness of pure vague "number goes up" theories without any meat on the bones... stock to flow puts some meat on the bones and provides a kind of framework to consider number goes up ideas.. yeah, it might not be right in its magnitude predictions.. but it gives you some ballpark ideas that are better than merely looking at the vague concepts of 7 different network effects....

In other words, we have to account for BTC's scarcity and how that concretely pushes bitcoin waves (mania periods?).. and S2F seems a good tool for considering that angle of bitcoin.


I can see that on a theoretical level, you can consider bitcoin in that direction, but still is not going to get you out of actual bitcoin price dynamics that have a supply curve that has a pretty strong framing effect on bitcoin - even if you strive to ignore it... and come up with other theories that seem to be generally applicable and not really tethered to bitcoins actual dynamics.

By the way, I have always been a bit bothered by the idea that mining causes the bitcoin's to come into existence because they get issued.. but we already know that they are already there.. so for sure, there are ways to calculate that they are already there.. and even get into efficient market hypothesis frameworks to attempt to price in the halvenings and the concrete physical dynamics that even though we know for sure that various coins are going to be issued at specific times, there still seems to exist actual physical and material effects that are not exactly knowable before the halvenings occur, and the actual various behaviors of folks trying to get coins that have been reduced in their issuance quantity that can take several months (or even a year or so) to play out to see how the halvening of the new issuance has caused increased constraints on the coins available and actors within the space adjust their behaviors to figure out the extent that they want coins from the existing supply, the new supply and in the end it might not really matter so much from where the coins are coming, but all the persons involved in the space come to realize that the price is going up because the new issuance is not enough to keep up even considering the existing supply that can get thrown back on the market too (with increases in prices).  Ignore, denigrate and poo poo these supply constraints to your peril...

Supply constraints have been an ongoing dynamic in bitcoinlandia, continue to be an ongoing dynamic and will likely continue to be an ongoing dynamic that continues to push bitcoin into cycles rather than merely vague and amorphous "roll your own" detached NGU baloney.


First of all.. S2F does not promise shit.. you are reading into it, if you believe it to be promising something..  but it does provide some probability frameworks in which you are likely to consider that some scenarios end up being more probable than others, so if you read those as promises, you are failing/refusing to appreciate that (especially in the short-term) minority scenarios can both play out and play out way longer than anyone believes to be reasonable or possible... so surely there are folks who are ready, willing and able to engage in behaviors to cause minority scenarios to play out, and they can do it for a very long time (relatively speaking), but does not mean that they will be successful in terms of breaking the reversion to the mean (even if they are trying to accomplish such.. and even though they might cause the model to have to become tweaked - such as shifting down the curve).


The predicted numbers do not seem unreasonable to me, so long as you do not either consider them as guaranteed and also continue to prepare yourself for both UP and DOWN... including appreciating that the asymmetric bet nature of bitcoin includes the idea that you do not need to stock away a whole hell of a lot of value to prepare for UP.. in order to take advantage of UP.. in case it happens - even if you consider such UP as a minority scenario.

I have seen this over and over in bitcoin, in which people fail refuse to adequately prepare for UP.... and surely having a lot of doubts about UP might justify taking a smaller position in regards to UP, but it does not justify NOT preparing for UP or being overly whimpy in terms of your UP preparations or fucking around with trading and trying to time the market and all that kind of bullshit.

On a personal level, newbies should just be figuring out what level of exposure that they want to get, invest for the longer term such as 4-10 years or longer and figure out how much to allocate to bitcoin.. These days investing 1% to 25% of your quasi-investment portfolio into bitcoin would be reasonable for any newbie, and to continue to study the space while getting to your initial investment allocation....

When I got started in bitcoin in late 2013, it took me about a year to get to my own investment allocation - which was 10% (even though I did not know that was going to be my target when I started), and my second year in bitcoin, I largely ended up overallocating into bitcoin and getting up to about 13.5%-ish... Seems to me that these days bitcoin's investment thesis is stronger, and instead of having 1-10% as the recommended initial newbie target, it is more than reasaonble to recommend such a 1% to 25% range, and surely the person is both responsible for choosing their own allocation and also responsible to attempt to learn and adjust strategies along the way... including one of the most basic things that any newbie should do is to assess his/her own particular circumstances including but not limited to cashflow, other investments, view of bitcoin as compared to other possible investments, timeline, risk tolerance and time, skills and abilities to learn, strategize and tweak along the way which may well include reallocating from time to time, trading and the use of financial instruments such as debt and other financial instruments such as margin and options... and surely I don't recommend getting to the more advanced stuff until working out the basics and sticking with more basic plans to make sure to have a solid set of strategies in the basics before using more advanced tools.. and for sure accumulation of BTC basics include dollar cost averaging,  buying on dips and lump sum investing... which I consider DCA to be the most powerful starter technique while attempting to figure out what else to do.. but getting started and getting the fuck off of zero..,. or these other failure/refusal to prepare for up scenarios that you seem to be cautioning d5000.  


Well.. maybe as a newbie bitcoin investor, many folks might not understand the differences between legitimate investments, so I would not expect them to figure it out right away.. and to be fooled into the wrong frameworks, so likely any newbie should be attempting to spend some time to study about bitcoin and also to study about their own finances.. and maybe that is part of the rationale why starting with DCA is amongst the smartest ways to get started in bitcoin.. and also to attempt to study along the way.  For sure, also once a person takes some steps to set up DCA and even to get some kind of a meaningful/substantial stake in bitcoin, then they are going to be in a position that some of the aspects of bitcoin will become more clear to them with the passage of time.. and yeah, if a person is very skeptical about bitcoin, maybe s/he is going to start out with putting just $10 per week into bitcoin, but as they become more familiar they may well be able to achieve something more aggressive, such as $100 per week.. and for sure, any person getting started in bitcoin should be taking steps to assess his/her own situation and to tailor his/her own bitcoin investment to such personal considerations and to reassess along the way.. which surely also might include getting out of bitcoin in the event that there are conclusions that bitcoin is not serving them in ways that they initially thought to be possible... so surely part of the justification of investing small amounts (such as $10 per week) while learning is that none of us should be over-investing into something in which we are not comfortable both financially and psychologically... and for sure, if any of us establishes at least a 4-10 year investment timeline, then we should not be expecting to cash out of any of our bitcoin during that time, so we also have to make sure that we have our cashflow situation under control so that we are not going to need any of the money that we put into bitcoin during that investment timeline.. and surely it is not easy for anyone to get their shit together and to get their finances in order while beginning an investment in bitcoin, another reason to start out small and to maintain something that you know that you can stick with.. while assessing and reassessing and maybe after a few years of being in bitcoin, there will be greater levels of learning that allow such a person to justify becoming more aggressive in his/her bitcoin investing.. perhaps? perhaps?



Seems like a BIG SO WHAT? to me.  People have to take responsibility for themselves, and whatever the market is going to do whatever it is going to do... and hopefully, you are not getting so worked up about such nonsense that you are failing/refusing to prepare your own self in terms of your bitcoin.. and again, frequently there is a considerable pattern of people getting worked up about various nonsense which causes them to inadequately prepare for UP.. so you do what you want if you are getting wrapped up into such nonsense and believe that bitcoin's price dynamics are going to be influenced in the ways that you believe and go in the direction that you believe to be potential .. while ignoring the S2F model elephant in the room - and other more relevant theories including four year fractal and exponential s-curve adoption based on Metcalfe principles and network effects.


Seems to me that you are lacking quite a bit in your framework of what is bitcoin and how bitcoin is an actual paradigm shifting technology that has been purposefully designed with incentives of supply constraints that make it the soundest money ever made - and which is very powerful in our internet/digital age, and you are failing/refusing to really account for the supply angle that has been influencing bitcoin's price dynamics and likely to continue to influence bitcoin's price dynamics, but hey you can do what you want in terms of the frameworks that you would like to believe and what ways you wish to propagate your ideas about bitcoin's dynamics that seem out of touch with reality to me.... and I am not asserting that your framework is irrelevant, just like the shadows in the cave are not irrelevant.. but they are not as directly relevant to appreciating the actual thing that we have in front of us - aka bitcoin.


We don't need to do shit.

Bitcoin speaks for itself, and if people want to get distracted by nonsense.. let them remain distracted... for sure some of these periods of suppression of bitcoin prices allows for more accumulation of BTC at lower prices, so hopefully, you are focusing on yourself rather than trying to save dumb-fucks from focusing on the wrong frameworks. By the way, I am no kind of elitist who is out of touch from reality, but to some extent, you gotta let people figure these things out for themselves, and I doubt that it is helpful to proclaim that S2F is not helpful to understand bitcoin so long as it is coupled by other dominant frameworks of four-year fractal and exponential s-curve adoption based on Metcalfe principles and network effects.  Yeah, there are other things going on, including manipulation and various other factors/indicators that you list, but it seems to me that you are getting overly distracted when you are trying to fight with what is actually going on, including better understanding how S2F fits into this matter, even if you seem inclined to give it less weight than me... but it seems to me that if you are spending so much time fighting it you are likely providing a disservice to yourself and to others, even if you genuinely believe that you have better ways of framing the matter.. and yeah maybe you can argue your nonsense for 4-10 years into the future, when you should have been focusing on ways to at least incorporate S2F into your framework.. but again, do what you like... that's your choice, and there are a lot of folks who are all worked up in their negging on S2F..and if you want to get caught up in such premature delusion.. then that's your choice.


We do not have to wait that long.   I think that people better make sure that they are thinking about bitcoin and acting now, rather than propounding some kinds of nonsense amorphous frameworks that they believe to be better blah blah blah.

Hopefully, you are acting based on information that you have in front of you right now in terms of adequately allocating into bitcoin, and preparing for a variety of scenarios rather than wanting to be right in 3-4 years.. about something that has a variety of paths and none of us should be fucking around with just one framework.. or whatever it is that you are trying to proclaim yourself to be correct about.

Are you wanting to give close to zero weight to S2F?  (maybe 20% or less weight to S2F?)  is that what you are trying to achieve?  After all of this back and forth with you, I still don't know what grounds you in your supposed "better way of thinking" about bitcoin price dynamics/social dynamics.  Are you really saying anything except that you wish that S2F were to have less weight than it does in the minds of folks considering BTC price dynamics. You might even be misappropriating how much weight that you believe others are giving to S2F in order to make your arguments regarding S2F being dead or insufficient in a variety of regards...  blah blah blah.


Ok... so you want to say that you hated S2F before it was even fashionable to do so.. great.


They probably disagreed with you because you were likely trying to give S2F way less weight than it deserves... Maybe you are trying to suggest that S2F should be less than 10%, but others are in the 40% to 50% or even more arena, but you are also trying to attribute arguments to them that they are in the 80% to 100%, which is also not true.

I would suggest that you reassess some aspects of your wanting to be right rather than trying to be a bit more reasonable in terms of what you might be saying regarding how much weight you are suggesting to be given to S2F... Maybe if you consider that question, you might, at least, find some value in S2F in order to attempt to make some of your arguments more reasonable and more fact based..?  I don't really have too many issues with a lot of what you are saying, except that you seem so damned inclined to negate and denigrate S2F that you seem to be skewing your own presentation of various matters... Maybe I am wrong, but seems that you should be able to frame your arguments better.... but I am also considering if you really do attempt to more fairly frame your arguments, you will likely realize that some of the ways that you are already presenting the matter are not as strong as you are trying to make them out to be merely because you are seeming to want to be right rather than to really think through some of the matters in more reasonable ways.


Seems premature to me to be saying that the model is wrong.  Think about it.  The model suggests a $100k average BTC price for the whole of the halvening period, and we are slightly less than half way through the halvening period.  Yeah sure, maybe you could say that the model is too ambitious and maybe only $60k or $80k will come to average out for this particular halvening period?  We also had PlanB spouting out absolutes and floor models, which are different concepts, even though he was basing some of his assertions on his interpretation of the S2F model.. which that portion of his interpretation was shown to be wrong, especially how he framed it.. namely $98k by November and $135k by December....






I don't believe it has failed.  If you have an expected line, the spot price can deviate greatly from expected mean line... under it or over it.. so yeah, currently we are quite greatly under it.. but still.. seems like a BIG SO WHAT?  and likely too soon to be saying that the model is not helpful.... or that it is invalidated or broken or whatever it is that you are saying.



I don't see why not.




Your level of expectations for the model seems to rise to the level of ludicrous... A lot of people have commented on the model at various points in time.. so if you choose to completely discount it or completely worship it, that's on you... .  It's still amongst the best of the models...from my perspective.. even if it is currently quite a bit underperforming prior expectations.



Of course, we do not disagree about everything.. that's for sure.

Not at all. I'm worried by the damage the model could do to Bitcoin (more below).

I agree with you that several altcoins are completely different assets than Bitcoin, because of their centralized and sometimes scammy nature. But that doesn't apply to all of them. There are more than hundred altcoins which technically are similar to Bitcoin (no premine, no centralized group in charge etc.).

Even with a superificial view at their price evolution it becomes clear rapidly that they are far away from the predictions by the stock-to-flow-model. Take Litecoin or Monero as examples, which both reached a new ATH in 2021, but their price level is similar to four years ago. Both have no excessive inflation rate so the curve should look similar to Bitcoin's.

If stock-to-flow is only valid for Bitcoin, gold and some other metals, but can't be applied to other assets of similar nature, what makes the "match" of their stock-to-flow curve in some timeframes more than a coincidence? A theory should be valid for all assets of a given category.

The only valid argument would be that many altcoins don't have really a "mature" market, but just for LTC and XMR this isn't the case. They are actively traded at hundreds of marketplaces. So their price evolution should be valid to contrast the stock-to-flow hypothesis with.

In my opinion, network effect is probably the main driver of Bitcoin's price appreciation. Thus, I think a detailed analysis of this phenomenon, when applied specifically to Bitcoin, would give more insight than any purely supply-based model like stock-to-flow.

I would even argue that we can leave supply entirely out as 90% of all Bitcoins were already mined. The effect of halvings on supply inflation is lower in every iteration.


More as about these short-term gamblers I'm worried about two things:

1) longer-term price evolution - stock to flow promises basically a continuation of the steep price increase of the last years. Even if in 2022 or 2023 we see again a strong bull market which gets the price again "in line" with the model, the expectations for 2025 (next post-halving) already are extremely high (500-750K). While it's not completely impossible I doubt this price will be reached in this decade. So roughly in 3-4 years likely there will be many disappointed investors.

2) the focus on the supply side/scarcity as "reason to invest in Bitcoin" gives credit to those critics who view Bitcoin as a "ponzi" or "greater fool game" where everything depends on finding new buyers for an asset whose main virtue is "scarcity". Bitcoin's scarcity is definitively one of the main reasons why it works. But it should never be the only or main reason to invest in it.

A combination of both factors could led to a worst-case scenario for Bitcoin: Disappointed investors change massively to the "ponzi critics" group. They get louder and louder in the media, Bitcoin's price plunges, and a general public opinion consent is forming that Bitcoin really is dubious and based on ponzi-like characteristics. Sharp regulation in many countries is likely to follow. While this will probably not mean the "death" of Bitcoin, it would be a major setback, back to 2015 or so.

To clarify: I am not endorsing the "ponzi" criticism at all. I'm convinced of Bitcoin's genuine strengths (difficult to censor, decentralized, global, etc.). However, I would like the focus for investors to change to demand-side characteristics: use by merchants/consumers, Lightning Network growth, and so on, as the reasons to invest in Bitcoin. Because if we can prove that Bitcoin doesn't depend on a price increase but is really used massively, then this would lead eventually to the definitive rebuttal of the "ponzi criticism", which would be a major achievement for Bitcoin in public opinion, I think.

Let's talk again in 2025

I've wrote several times in this forum, already months (even years, I think) ago, that I disapprove of the stock-to-flow model, even when it still seemed perfectly valid. I admit that was mostly in the local sections, because I'm not so fluent in English than in Spanish and German and thus are more active in these sections. Many people disagreed with me and that's completely ok.

But it's not that I got "only now" against this model "because it no longer works". I think if a model was wrongly conceived from the start, then it should not be used, even if it seems to work for some time. Just there's where the danger lies: we could get confident that it works, but when we most need it (e.g. in the next bear market, when for Bitcoin it would be advantageous to find new investors) it fails completely. See above in the "harm" section.

It should not be tweaked infinitely, though. For some time one can adjust magic constants a bit and add new formula elements to make it work again. But until demand isn't taken into account, its main flaw continues to be present. Did PlanB try to get a peer-review by a serious economist?

By the way, even if we disagree in most aspects (with the rest of your post, I partially can agree, or at least agree to disagree), thanks for taking the time to answer in detail

The stock to flow model I think depended on assumptions in terms of demand consideration. It could not have assume that demand is constant. The demand and supply has so much influence on any market that is to be traded. Some models uses the artificial demand that will be created by the assumptions of the model to predict. Hardly there is any model that works 100 percent on all models. Stock to flow model is not perfect but it has giving good idea on how to follow bitcoin market. Bitcoin is still in the early stage and it is still changing, so it can be proving some models wrong with time.

I don't completely disagree with you, at least in terms of your wanting to assert that there are some factors/indicators that might well not be captured by the Stock-to-Flow model, but you seem to be filled with a lot of disgruntledness in terms of maybe specific expectations that have been assigned to the stock to flow model by people who follow the model and perhaps even by PlanB himself in terms of PlanB likely talking up the model too much and also there seems to have been quite a bit of mix up between stock to flow and PlanB's additional discussion of a floor model that he created that really got into specifics that ended up being way the hell wrong .. so it seems really hard to give any credit to PlanB when he was putting out so much specifics with the floor model.. $98k in November and $135k in December.


That's bullshit d5000.  The fact that stock to flow to a bunch of shitcoins means that it is not valid when applied to bitcoin.

Fuck shitcoins.  I do not even want to get into any discussion regard the variety of phoney baloney in various shitcoins and that you want to consider them as somehow valid assets that are even close to bitcoin - even though there are quite a few shitcoins that have been riding on bitcoin's coattails in a variety of ways.. some more successful than others and some coming up with their own unique ways to scam people out of value through ponzi schemes and various other kinds of innovative and money printing scamming mechanisms.

If you know some of the story behind PlanB's attempt to look at bitcoin through a stocktoflow model, it had already been applied with various other kinds of assets with varying degrees of success - so surely it should not be considered as any kind of model that will fit very well with all assets, but surely does seem to fit with bitcoin quite well.. even though maybe there could be some fair questions whether PlanB has done it correctly in bitcoin including how he trajectories out based on historical data that surely is going to vary to some degree in terms of whether any kind of exact mathematical formula is going to fit to trajectory out the numbers in to the future.


Of course, demand is a factor.. and whether stock to flow is presuming ongoing demand (so treating it as a constant) or just assuming that it is going to continue at some kind of level that it need NOT need to be accounted for.. because it is likely to just continue to go up along with the growth of bitcoin's adoption...

The lack of accounting for demand hardly seems to be as big of a flaw as you are making it out to be, and I suppose that one of the reasons that I have liked to emphasize that stock to flow should be looked at along side the four-year fractal (which surely is somewhat redundant) and also considering exponential s-curve adoption based on network effects and metcalfe principles - is probably my concern (as well) that demand is not sufficiently accounted for in the stock to flow model.. and considering the varying network effects (even the 7 that were outlined by Trace Mayer) would be helpful supplements to the stock to flow model.


harmed the bitcoin community... that seems to be bullshit too.

yeah... there may have been people who were overly assigning value to BTC prices to be at least above $98k in November and above $135k in December.. so they got reckt as fuck because they were gambling..

Good.

Purge the gamblers.

 


you can bury stock to flow to your peril...

Good luck with that.. you are going to need it.

Stock to flow remains one of the best BTC price models that currently exist in bitcoin (if not the best?). even if it is currently 2 standard deviations below the means of expectations.


Of course bitcoin does not need the model.. bitcoin is going to do what bitcoin is going to do... and surely bitcoin was already following such a model before planb formulated the matter.. and the stock to flow model still seems to help some folks to think through what bitcoin is.. and also to consider various aspects of BTC's price dynamics.  Very helpful.. but surely not needed.. and there are other ways to think about the matter and to come to similar conclusions.. even though the stock to flow matter remains the best, currently.. and if you want to handicap yourself and others by not using it and persuading such other dweebs  (who fail/refuse to account for valid models) not to use it, then that is your choice.  You are all going to need luck.. both you and any dweebs that you convince that the model provides no value (provides the opposite of value, right?  ahahahahaha)
 


There's some helpful frameworks that fall into mathematical parameters.. whether you appreciate them or not or whether you believe that they help to inform you better or not.  Your choice, for sure.


Nothing wrong with taking into account a variety of other factors.. and some of those various other factors might well mislead you into nonsense.. so you can choose how much weight to give to various factors/indicators and you can also choose how much weight to give to stock to flow... whether that is low to none or a considerable amount of weight is going to vary from person to person.. and surely some people are going to end up being more correct than others in terms of how they are assessing various factors/indicators and how much weight they are assigning.

By the way, even fillippone mentioned above that the stock to flow expectation  for Bitcoin's mean price for the whole of the 4-year period following the halvening is $100k.. so we are a couple of months short of the half way point, and some folks want to completely write off the model?    Shouldn't we get further along in the whole assessment period before arguing both the model has little to no value and that the model is invalid.... blah blah blah.   

Surely, it may well end up being the case that we get through the whole four-year period, and the stock to flow model (in its current iteration) underperforms the whole four-year period, so in that regard instead of an average of $100k for the whole period, there is some other lower average number - such as $90k?  $80k?  $60k?  $40k?  how much the average ends up being off (to the extent that it does end up being off) might well help to inform those of us who are taking such model somewhat seriously as a serious contender in the way we think about BTC price dynamics whether the model might be invalid or whether the model might need some kinds of tweakenings, no?

Many here won't like my post, but: My opinion on Stock-to-Flow is, and has always been, .... devastating. I consider it pseudoscience (sorry PlanB).

It wasn't just invalidated in 2021, it was invalidated years ago because when you apply it to altcoins with fixed supply or lower "inflation rates" compared to Bitcoin it should lead to an even sharper price increase charts, which didn't happen.

The explanation is simple: Stock-to-Flow doesn't absolutely take demand into account. Demand is crucial for the value of all existing assets. We can have some super-scarce assets - if nobody likes it, its value will be zero.

Stock-to-flow may have even harmed the Bitcoin community, because of the unrealistic expectations it generated. Perhaps the price decline we're seeing since December was generated at least partially by sellers who now feel "betrayed" because the model didn't hold.

Let's bury Stock-to-Flow pacifically and get over it. Bitcoin doesn't need this. It can grow organically without permabullish "mathematical" assumptions with questionable validity.

Instead, we should focus on better fundamental analysis, e.g. taking into account evolution of addresses/transactions/LN (Quantity Theory of Value), option prices, exchange users (like Crypto.com's periodical analysis documents), stock prices of Bitcoin companies, mining difficulty evolution, etc. These numbers give indications about demand, in different ways. Supply indicators can be part of such a model, but a working model must always take both aspects (supply and demand) into account.

Do you know how PlanB is calculating the standard deviation for future values?  I can’t quite work out how he can say what the standard deviation will be for the predicted future value, it appears to be a static value and not changing according to the actual observed values.

In any event, as calculated the two SD range is rather large, so not entirely surprising that the price is still within it!

PlanB had a few difficult week trying to explain why the fail fo the year (BTC not getting to 100k).
Firstly he stated that the price was within the 2 standard deviation, then he stated that the important thing is having 100K on averGe during the cycle. This meaning the longer we stay below 100k, the longer we have to stay above to reinstate the average.
We will see, as usual, interesting times ahead.

Strange how this model continues to hold traction in spite of 6+ months far away from the predicted value.

Since PlanB resiled from his “S2F will be invalidated in December” statement what is the current expectation about where he will go next?

This topic is very helpful to me. I open all the attached documents and read them well. This topic has answered by question. Though people answered it before, but I got much clarification here. My question -
PlanB explanation below and the more link, gave me an extended answer.
Again, saying about the fixed supply of bitcoin at 21million. I am predicting that there will be a major hard fork after 2140. It is all about consensus, there will be glaring need for it. So many miners who accumulated huge amount of btc from early mining will always say no to any hardfork, but in years coming, when they must have spend their btc, they will agree to change the protocol and create more bitcoin.

Again, it was said in the article that Ripple and other altcoins that doesn't use PoW do not have security. If actually they do not have security, why are they existing till now, there should have been major hack or the network cheated to death.

So, for S2F model. It was stated that it is not a law, it is just like a model which is a semi hypothesis. There will be deviation at a point and there will be modifications. But S2F has helped many become successful in bitcoin.

I'd say WAS one of the most accurate models, until the last few months happened. For instance in 2020 when bitcoin crashed to 30k the model variance was only 0.3, but last summer it was 0.9, like in the lows of the 2018 bear market.
I wouldn't count it out though. There's a chance we're in 2013 again with last year being only the first phase of the bull market, in which case S2F is on track. We'll know in a year.

Is one of the most accurate models and clearly the one that gives more incentives to the future investors. However good, the accuracy is always limited and there may be factors on institutional investors that may limit the future validity of the model and the need to re-tune a little bit to get a proper long term measure. It is in any case a difficult exercise and, perhaps, if the model becomes too accurate the profits may not be there.

There has been a lot of debate around Stock to Flow recently, as the market started moving on another level, with model flirting with the 2 standard deviation error  interval of confidence.

This of course raised a lot of irony, enquires and skepticism about The model itself.

Today I found this Twitter thread, discussing some PlanB criticism, and I’d like to share here:

Original Tweet





Twitter thread unrolled


Quoted article:
WHY THE BITCOIN STOCK-TO-FLOW MODEL IS NOT USEFUL

It is probably as good as it gets, but again, it is very easy to adjust a model backtesting, that is, adjusting the parameters so that it works perfectly in "predicting the past". But the nature of the market in the long and short term is highly psychological and bitcoin is facing legal and geostrategic issues that was not facing before. 200 year before it happened, people would not have predicted the fall of the Roman Empire to put it in a way.

Heck yeah.

I just Translated this Topic for my Local People. I was learning about the Stock to flow Model. I don't know how many times I read this thread. I learned a lot about the Stock to flow Model just to Translate this thread. It took me about two weeks. During these two weeks, I read this thread may be more than 20 times and I was translating a bit. I learned many things about Bitcoin from this one. I never knew that Plan B Expected We could hit 100 Trillion between 2024 and 2028. BTW, That was an awesome experience. I was not able to write a full thread in One post so I had to post twice. I don't know why? Maybe there is a Word limit or something like this. Anyways, Great Job @fillippone. Thank you very much. I would like to request you to add my post link on the OP and check out my post too

স্টক-টু-ফ্লো মডেল: অভাবের সাথে বিটকয়েনের মূল্য মডেলিং

There have been a lot of discussion lately about the Stock to Flow being invalidated by low market price.
In his last Podcast Stephan Livera discussed this with PlanB.
As usual, really interesting discussion emerged.


https://twitter.com/stephanlivera/status/1465346237163610114

Hopefully you are not buying gold as a way to preserve your wealth.. even though sure there is quite a bit of industrial value in a variety of PMs, including gold, but they are likely going to use their currency value to bitcoin since bitcoin is at least 100x better than gold in terms of monetary properties and might even be in the ballpark of 1,000x or more better than gold.

There are a few other assets that are being used as inefficient storage of value also such as properties and equities, and they are likely going to be losing their value to bitcoin too.. at least the storage of value aspects.

Not everyone understands what is happening in terms of our greatest wealth transfer in history that is going to continue to cause the S2F model to be correct in terms of the ongoing UPpity aspect that it is showing that might not exactly account for exactly how demand is going to continue exponentially in terms of the various network effects that continue to build with ongoing adoption and the realization of people that bitcoin is the superior asset - both in terms of storage of value and also it has the advantage of the ongoing exponential adoption.,, that causes unfairnesses in trying to compare it to more mature asset classes whether we are referring to PMs or properties, or equities or some other asset classes.

The point with gold would be the price is never supposed to change, it indicates an alteration in the underlying currencies if pricing is continually changing.  Of course for certain the plan is being implemented such that dollar is devalued; we expect every price of a performing asset to go up in such a long time.   However in defense I'd say gold is not a performing asset, no dividend, no returns no company investment just some metal so its just a liquid commodity used as currency over centuries and now its mostly the reference not performance itself.  There is also the longer time line, though a decade should be enough to draw a conclusion if any asset can say its long term and with minimal velocity it would be gold, some holdings have not moved since before ww2 for example.
  Lastly I'd say inflation invalidates all prices in terms of value, its how society becomes poorer as savings will not have maintained vs inflation, nor wages and so on.   Asset speculation, debt trading by bankers, they did well etc.