Bitcoin is on track to be one of the best performing assets of the year, despite a recent retraction – but that hasn’t stopped the Bitcoin bulls from fighting on Twitter.
The price of bitcoin has climbed for much of 2020, adding around 40%, with the bullish stock-flow model – which predicts a whopping $ 288,000 bitcoin price before 2024 – running “like clockwork,” according to its anonymous creator.
However, a number of top Bitcoin analysts and entrepreneurs clashed on the stock-to-flow model last week, with anonymous PlanB accusing its critics of trying to unmask it and its model being derided. as “absolutely unnecessary”.
Bitcoin has climbed so far this year, but a controversial model suggests the price of bitcoin is around … [+]
SOPA / LightRocket images via Getty Images
“The [stock-to-flow] The model is based on the most basic mistakes that make it absolutely useless, ”warned Alex Kruger, economist and cryptocurrency analyst, speaking over the phone.
The stock-to-flow pricing model, created by anonymous Twitter user PlanB, who claims to be a Dutch institutional investor with experience in legal and quantitative finance who manages around $ 100 billion in assets and tweets from of the handle @ 100 trillion USD, calculates a ratio based on the existing supply of an asset to the quantity that comes into circulation.
Commodities such as gold – with the largest stock-to-flow ratio of 62, meaning it would take 62 years of gold production to get the current gold stock – have a higher stock-to-flow ratio. high and are valued by investors for their rarity. Silver has a stock-to-flow ratio of 22 years for its production to reach the current silver stock.
Bitcoin’s stock-to-throughput ratio is now 50 after Bitcoin’s third halving earlier this year, which saw the number of bitcoins awarded to those who maintain the Bitcoin network, called miners, halved – from 12 .5 bitcoin at 6.25.
However, Kruger, along with many other analysts in recent months, warned that the model was based on flawed comparisons and a “spurious relationship” between price and scarcity.
“The whole model is based on the mistaken assumption that there is cointegration [a long-running relationship between two or more variables] between price and scarcity, ”said Kruger, who Explain that without cointegration, it is “absurd to think that stock-to-flow bitcoin, a number that increases programmatically, and everyone knows what that will be at all times, can be used to predict the price.”
Criticism of the stock-to-flow model and its creator recently exploded, with general manager of the Swan Bitcoin buying app Cory Klippsten posting what PlanB considered to be credentials on Twitter before deleting them and claiming he was “wrong to post personal information” on PlanB and add anonymous bitcoin users “should have the right” to remain anonymous.
“It is extremely important to be optimistic for the right reasons,” Klippsten said via Twitter, explaining his opposition to the popularization of the stock-to-flow model. “Otherwise, you will have weak hands when your belief is proven wrong.”
Klippsten, speaking via Telegram, said he supported the stock-to-flow pricing model until just a few months ago, when he “looked at the models and realized that they were invalid “and” have no predictive power “.
According to PlanB, which disputed the credentials published by Klippsten, the stock-to-flow pricing model shows bitcoin will hit $ 288,000 before bitcoin’s next halving in 2024. PlanB also argued that assets that have a high stock-flow have a high value, showing gold, silver, diamonds and real estate in a chart published on Twitter.
The stock-flow price model represents the price of bitcoin relative to other rare assets such as gold … [+]
@ 100trillion USD / Twitter
Meanwhile, PlanB downplayed the potential accuracy of the model, saying earlier this year: “A model is a simplification of reality, and all models are wrong, but some are useful.”
Elsewhere, others have supported the modeling of PlanB – not as a price predictor but as an observation of a trend.
“Think of @ 100trillionUSD’s S2F model as Moore’s Law: it is only an observation and a speculative projection that an observed trend can continue,” said Adam Back, founder and CEO of the company. Canadian technology Bitcoin and Blockstream blockchain, via Twitter, referring to Moore’s projection that the number of transistors in microprocessors would double every two years.
“[The stock-to-flow model’s] forecasts should not be taken as an exact estimate, “Bitcoin analyst Nick Emblow said via Twitter. “What the model does is give us evidence to show [stock-to-flow] is an important variable in understanding the value of bitcoin. “
Critics of the stock-to-flow model, including Alex Kruger, are not convinced, however.
“The beauty of the model is that it’s open,” said Kruger, who is concerned that PlanB’s stock-flow analysis is being used to convince people to invest in bitcoin with the promise of not losing their money. . “You can always extend the deadline until you find what you’re looking for.”
“True believers will hold [their bitcoin] no matter what. There are others that will be destroyed when the model is completely shut down and tries to recoup their losses. “
