Bitcoin Forum

Bitcoin is converging to the stock-to-flow model. The paper that I posted to this forum previously, which explained all this, was too long. Here it is, simplified, in very obvious terms and many colorful pictures:

Just a 4 minute read:
https://medium.com/@AJC241469/on-bitcoins-convergence-simplified-part-1-3e521b0b1515 (https://medium.com/@AJC241469/on-bitcoins-convergence-simplified-part-1-3e521b0b1515)

Why don't you tell us something about your article first? A brief summary

I don't know what you are talking about. If you explained it here in a few words, about 200, more people would get interested and click in your post.

 - Seriously? The article is a summary! It's a 4 minute read! And when you do click it, the first thing you see is a picture and you'll know exactly what it's about: The S/F model.

Nevertheless this is an interesting study and I want to thank you for taking the time to make it and format it nicely in an article. While I'm not very familiar with the stock-to-flow model ( I need to make some research on it) I can clearly see the ideas and patterns spotted in the market. If we continue this trend IMO we can see $1M/unit by 2030.

 - Thanks, dude! I've just been trying to show this to other people because IMO this is very important. The first paper I wrote was so wordy and had so much math, barely anybody bothered to read it! So I had to make it simple and use a lot of pictures... I guess that was how I should have written it the first time.

The crazy thing is, the really incredible stuff that is implied by this studied isn't even mentioned in that article! If this pattern continues, there is going to be some craaaazzzyyy shit going down in less than a decade.

Ok, go ahead and do as you wish and ignore any constructive criticism. You are going far spamming your link around ;)

I don't know what s/f is. If I were you, I would make something like:

" Do you know What is S/f model? S is for stocks, F for football, (or  whatever it is lol). It is useful for this and that.

Just paste your introduction or whatever... You are already promoting your article for free , try to put some effort in it.

Or just spam it around if you are satisfied with the results . I will never click such posts.

I feel curious about your article, but I don't really understand because the picture isn't clear enough, do you think the current market conditions are converging, ? from that analysis whether the price will go up,?

What is the whole idea behind this article because I just saw diagrams showing the market value of Bitcoin for the past years. What is the specific purpose of this article to both the crypto space and the ecosystem? There is no specific understanding of this article. You just made me waste my time trying to understand this article.

 - If you read the second sentence of the article then you would know that the entire article is focused on a model of Bitcoin's market value based on its stock-to-flow ratio. The model was first proposed by a guy on Medium called "Plan B" (medium.com/@100trillionUSD). Did you read that sentence?

 - You won't understand my article unless you first understand the model proposed by Plan B (medium.com/@100trillionUSD). If you've never heard of that article, or you don't understand it, then you won't have any idea what my article is talking about. That's why I mention it in the very beginning,

"You all remember this picture, right? If you don’t then you can go read about it on Plan B’s page: PlanB. If you do know what it is, let’s move on."

That's what I wrote. So, again, If you don't know what that picture is then go read about it on Plan B's page.

Same thought. The topic is not very clear. First is op didn't include some introduction or summary here in his thread. Second, the article starts with a picture, and asking us if we remembered that picture. You said if we don't know, go to other page which I think not everyone will do since it will took a lot of time instead of giving us short preview about the model.. Personally I don't understand the article because I'm just seeing different graphs without clear and easier-to-understand explanation.  I don't have an idea about stock-to-flow model, and I think the others too so you should have at least started your article with introduction and explaining what really the model is all about.

This is just my opinion so I hope, you take this lightly or suggestion and not as something negative.

Seriously. Many won't open a link, especially posted by a newbie.
This is a forum. A place people are discussing. What if instead of answering, people would post a link to their own websites?

So the advice to put a couple words here was a valid one.
And instead of countering such advises, be happy it was not reported and deleted for just posting a link.

So again, add more words there. Quote a little. It's for your interest.

The picture where you brought the Halving event into the equation shows that the low point at the Halving are increasing, but that the ATH price is

also going down. So the bottom is getting lower, but the ATH is also declining.  :(  That is not good news for the people who bought in 2017 at the

ATH of $18 000+ ... at this trend, they will never recover their losses. I think the 2017 spike in the price was a abnormality and it will most probably

not happen again soon. Looking forward to the next spike in the price after the Halving then, based on your data.  :P

I believe OP has a previously opened thread - wrote a paper about the convergence of bitcoin toward the stock-to-flow model (https://bitcointalk.org/index.php?topic=5198577.msg52980119#msg52980119) about the subject matter and he/she maybe excited about his/her findings to present it to the community!

@OP, I hope you would welcome constructive criticisms from other members of the community in the hope that they may find your study interesting. So I guess you need to provide maybe just a little backgrounder about your study to present your idea clearly. :)

OP's data is flawed beyond belief

all he has done pretty much is claim a chart represents
the market price 2010-2012 multiplied by 10.5m
the market price 2012-2016 multiplied by 5.25m
the market price 2016+ multiplied by 2.65m

what he fails to attribute to the data is the fact that the market price is not of sales of every coin in circulation.
infact the market price chances by $'s for only  couple btc.
exchanges themselves are not hoarding 18m coins today. they are only hoarding 1.2m coins so the supplydemand dynamics of a markets price are not to do with the circulation of 18mill coins..

put simply
a) whether he done the market price multiplied by 10.5m
b) or market price multiplied by 50coin

a) whether he done the market price multiplied by 5.25m
b) or market price multiplied by 25coin

a) whether he done the market price multiplied by 2.65m
b) or market price multiplied by 12.5coin


both charts a and b would show the exact same pattern of price curve and rarity step
the only thing that changes is the legends/labels

things the charts miss are
1. coin creation costs dont double every 4 years and halt at each step(its a fluid transition due to difficulty over time)
2. the market does not have 18m hoard/supply it has about 1.2m supply at present and even back in 2013 with MTGox as the main exchange only having ~900k coins and other exchanges less totalling again around the same 1.2m supply

so sorry dude but you need to add more metrics into your math if you want to actually show stock:flow

I guess you have franked yourself this time, friend.
There is no doubt that bitcoin has stock flow, almost everything that changes/fluctuates has it.
Question is, did OP extracted correct conclusion from such analysis?
If I'm not mistaken, he is correlating the fact of stock-flow growth, with bitcoins price growth. Based on supply and demand law, this only seems like a correct interpretation however according to the definitions, one unit value does not necessary follow the model of growth while a very specific scenario is at play, that is instability of the market. This was discovered by Copernicus centuries ago!
As you have noted, market cap is actually stable, around 1.2m, so this is really looking like bitcoin is and will follow the flow pattern that OP is predicting. It's value should grow in correlation with the market, because supply is shrinking and the demand remains roughly the same.

 - You have no idea what you're talking about, and your English writing skills are so poor that it's hard to understand your criticism. If you don't understand the stock-to-flow model then that's fine, but you really can't provide any constructive criticism until you understand it.

 - Well, to be fair, the title is actually quite concise, so if you read the title then you would know what the article is about. If you know what the word "convergence" means, and you see the title is called "On Bitcoin's Convergence," then that kinda already tells you what the article is about, right? And the article starts with the picture of the thing toward which Bitcoin is converging! Seriously, you people are complaining "I don't know what this is about," well that's not my fault! Maybe you should educate yourself! I provided the link to the article that will give you the educational foundation that you need to understand the article, but instead of clicking you just respond with "I don't know what you are talking about."

Well.... sorry, I'm not going to type all of Plan B's paper into this forum. I'm really quite surprised you've never heard of the stock-to-flow model.

 - To be more correct, it was Plan B who correlated the stock-to-flow with bitcoin's market value. The article that I posted merely demonstrated that bitcoin's market value appears to be converging toward the value implied by the model.

Alright, I copied and pasted an explanation:

https://bitcointalk.org/index.php?topic=5200284.0 (https://bitcointalk.org/index.php?topic=5200284.0)

I also think about that on what he want to mean?  If he going to just simply tell what was going to mean it was easy to say something but not.  There are some link or too much words that everybody tired from reading so sometimes the thread become trash because of that.

Point taken but also note, who is the one that I pointed as a true discoverer of the quantity theory of money.
People often go with 19th century scholars like Irving Fisher or Ludwig von Mises but they already forgot the pre-revolutionary father of "modern" economy, Nicolaus Copernicus. Most know about his literally groundbreaking book "On the Revolutions of the Heavenly Spheres" but what about his mathematical works as monastery steward? Basically remains unknown. I bet that if Kopernik was still alive, he would HODL some bitcoins. xD
BTW previously posted rants about you linking us to medium instead of re-posting here, where true. That's a decent article, you may have got some nice merits for it, just saying.

 - I was confused why you mentioned Copernicus. As I am a physicist, I knew about his work on the revolutions of the planets. I did not know that he also wrote about economics.

"Thus Copernicus declared that it is impossible for good full-weighted coin and base and degraded coin to circulate together; that all the good coin is hoarded, melted down or exported; and the degraded coin alone remains in circulation."

I guess we are hoarding (hodling) the good coin!

https://bitcointalk.org/index.php?topic=5200284.0

I think S2F model makes an silly prediction that price goes to infinity when block rewards go to zero. The only coherent scenario that maps to that is all fiat going away and therefore BTC/USD being "infinite" in the sense that USD is valued at literally zero, which isn't happening. furthermore, it predicts ongoingly exponential returns in the coming years, but that doesn't make sense. BTC's volatility will continue gradually falling, along with the returns tapering off as the market cap gets bigger. This seems incompatible with what stock to flow predicts.

In my opinion it's all about liquidity and actual adoption. If 90 percent of the wealth is owned by 1 percent of the population, how does anybody ever expect a BTC price over $56,000? I don't think its possible, until countries start to jump in, and then it truly becomes a FOMO-type race for adoption, as a country that is now considered third-world countries suck as Venezuela is doing, who knows how its all gonna play out but i have always banked on this thing being taken seriously.

Your work is interesting and insightful, but I don't believe the stock-to-flow model is relevant to price. As I posted have posted elsewhere:

1. The price has gone up exponentially over time, but that is all the stock-to-flow graph really shows. The price is correlated with any data that increases exponentially, such as stock-to-flow.

2. The stock-to-flow vs. market cap graph is becoming less relevant over time. If you look at the data, you will see that the shape of the graph is changing over time, with the points lining up more vertically after each halving. After the next halving, the points will begin to form a nearly vertical line. The long term graph may still still show correlation (because market cap and stock-to-flow are both exponential), but after the first halving, the graphs between halvings show almost no correlation.

3. The stock-to-flow model predicts that the price will increase exponentially to infinity. Not only is that impossible, but the price is already diverging from the model.  If you look at a price graph, you can see that the price is increasing exponentially, but you can also see that the price is starting to flatten out. That is the opposite of what the model predicts.

 - It is not at all incompatible with what the stock-to-flow model predicts. I have written about this in a couple articles, the market value of bitcoin has been converging to the model, and it will only take 2-3 more halvings for Bitcoin to become more valued than all fiat currencies combined (i.e. total market cap ~ $100 trillion USD). When that happens, society will naturally begin to price things in Bitcoin rather than USD because Bitcoin will have become the most valuable commodity.

https://medium.com/@AJC241469/on-bitcoins-convergence-simplified-part-1-3e521b0b1515 (https://medium.com/@AJC241469/on-bitcoins-convergence-simplified-part-1-3e521b0b1515)

Honestly, I had a hard time understanding the article, because I lacked some background knowledge of the whole thing. But then I did some more research on what stock-to-flow is and tried again. And it was hard again, so I involved some other reading on the topic to get a more general idea. Alright, Bitcoin is becoming more scarce due to halvings, and bigger scarcity means higher attraction for investors. But the problem is that it's not like scarcity always means a higher price. Something can be very rare but people won't care about it, so the price in the free market (and Bitcoin's price is established this way exactly) will decrease. So the model does not prove anything. And there've been articles already suggesting that the model is flawed.

 - Okay, well you did a good start but I can tell you did not do some critical research. I made another thread that provides some summary, https://bitcointalk.org/index.php?topic=5200284.0 (https://bitcointalk.org/index.php?topic=5200284.0). But, really quickly I will just write that your statement "Alright, Bitcoin is becoming more scarce due to halvings, and bigger scarcity means higher attraction for investors" is not precise, the scarcity is not what attracts investors, the scarcity is what attracts any rational person who uses money to exchange for goods and services.

I like to draw an analogy: A person can fly a helicopter above a rainforest and look at the billions of leaves in the canopy, and ask the question "Why are there so many leaves? How can we predict the number of leaves in the future?" A very, very analytical person might say, "There are so many leaves because there are so many branches. We can predict the number of leaves in the future by the current growth of new branches." But that analyst would ultimately be very very very wrong! A very smart and insightful person would say, "There are so many leaves because the ecosystem of the rainforest is such that it fosters the growth and replication of trees. We can predict the number of leaves in the future by studying the dynamics of the entire ecosystem and the quality of the soil."

Doing technical analysis or looking at superficial statistics to predict the future price of bitcoin is like looking at the branches of a rainforest to predict the future number of leaves in the canopy. Examining Human Action and quantifying fundamental economic principles is like looking to the entire ecosystem and the quality of the soil to predict the future number of leaves in the canopy. It is not that the superficial quantitative analysis is wrong (in the short term), it's just that it is superficial!

You made what obviouse I am not one to just start clicking links. What is this exactly that you are talking about?  It looks to me to be a chart. If you want more opinions explain a little more and get everyones attention! Then everyone will follow your links?

lol. that old 'scarcity' chestnut
gotta make me laugh

1. the bitcoin 'market cap' is not a dataset of combined bank balances of all exchanges hoarding fiat to back bitcoins price.
the bitcoin market cap number itself is a flawed number. firstly its just taking the bitcoin price and multiplying it by coins in circulation.. flawed why.. because it should be called the bitcoin circulation value cap. and also it has nothing to do with how many coins are in exchanges OF THE MARKET
there are only 1.2m coins in exchanges, not 18m

look at the gold sites they total ~$3trn on gold market caps. not $7trn of 'above ground gold' cap
because ~50% of gold is on markets and 50% is used in jewelery and electronics

in 2013 it was estimated that the MARKET supply of coins of mtgox/bitstamp/BTC-e at the time totalled more supply then, than now. thus there is more demand now due to less supply on the actual markets that make up the actual price.

2. the scarcity' impact you are thinking of is not about the coins mined vs price. as explained(1) but instead the COST of mining 1coin vs price

3. but here is the real funny. the medium article:
truly funny how you actually think there is $1trn sat in bank accounts locked away to back up bitcoins price

its time you had another look at bitcoin fundamentals and not work backwards next time.
EG try not to be thinking the bitcoin price is bank account balance divide by coins.
and instead think. price of btc multiplied by market hoard
yep try market hoard(~1.2m currently) not coin circulation(~18m currently)

i say this because if you went to a gold investor showing math of 'market' data but based on the 190k tonne above ground. they'd get a red pen out and grade your work (F)
then laugh again when they see the charts with a 'step/gap' and not a curve of periodical lessening incline

 - I can't take anything you wrote seriously because your writing and grammar are so poor, I can't make much sense of anything you wrote. If English is not your native language then I expect we will do nothing more than talk past each other. If English is you native language then I'll just write this: It seems like you think the number of coins in circulation on the exchanges is a better predictor of the value of Bitcoin than the cumulative number of coins produced. Well, I would write you're an idiot, but I'll be nice and I won't write that. Instead I'll just say that I don't think you understand the fundamental economic principles. I'll respond with the same thing I wrote to another person:

I like to draw an analogy: A person can fly a helicopter above a rainforest and look at the billions of leaves in the canopy, and ask the question "Why are there so many leaves? How can we predict the number of leaves in the future?" A very, very analytical person might say, "There are so many leaves because there are so many branches. We can predict the number of leaves in the future by the current growth of new branches." But that analyst would ultimately be very very very wrong! A very smart and insightful person would say, "There are so many leaves because the ecosystem of the rainforest is such that it fosters the growth and replication of trees. We can predict the number of leaves in the future by studying the dynamics of the entire ecosystem and the quality of the soil."

Doing analysis on the number of circulating coins on the exchanges in order to predict the future price of bitcoin is like looking at the branches of a rainforest to predict the future number of leaves in the canopy. Examining Human Action and quantifying fundamental economic principles is like looking to the entire ecosystem and the quality of the soil to predict the future number of leaves in the canopy.

The article is too complicated and has too much in-depth knowledge.  But it is recognized that Bitcoin will sideway long-term then continue to go up slowly.  You can share it with your knowledge.  Describe in a way that is easier to understand and simpler for us to discuss.

If it shows that bitcoin will sideways, is that not a good news, because this period off sideways is when we call bitcoin consolidation, and if the case is to be like it was in the past before the last all-time high, it was during bitcoin consolidation that many of these altcoins started increasing in value too and that is usually the time that we have been waiting for altcoin season to start.

During the time that bitcoin is going sideways, there is usually no much growth of bitcoin, because it has giving chance to altcoin to start increasing, and I hope that when that time comes also, it will not waste all the opportunity bitcoin has been giving because it still very much on the interest of investors too to buy altcoins that will be showing sign of increase them for them to get to their all-time high too.

Mises is not from the 19th century, but from the 20th (https://mises.org/library/ludwig-von-mises-books). They correctly predicted the crash of 1929, in the middle of the roaring 20ies... In any case the Austrian school of economy starts with Carl Menger and others.

This is the only group of economists that support using deflationary money (gold), devoid of any State control. for the others (currently dominating), its taboo...

Funny you bring Copernicus, he brought us Quantity Theory of Money (https://en.wikipedia.org/wiki/Quantity_theory_of_money), which Mises himself developed upon (https://mises.org/library/theory-money-and-credit)...

honestly, this article is not easy to understand for me in the sense of the stock-to-flow model, and I am not accustomed to seeing the graphics that you have made. maybe it could be made even simpler. but overall appreciate your work...

I try for understanding what topic talking about but still confused to understand about hos words, but I appreciate with opinion by bitcoin now and obvious to explain interested with bitcoin, right now many people look understand with bitcoin can increase investment assets but they are never understand with how risk faced by bitcoin in future.