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Author Topic: Stock To Flow Model: Modeling Bitcoin's Value with Scarcity  (Read 1354 times)
fillippone
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October 11, 2019, 09:54:40 AM
 #21

I will try to answer all your question, limited to my understanding of the model.

IMO articles like OP are irrelevant to the Bitcoin and other altcoins where prices are driven by specula and specula only.

1. The Assumption
Let's see about the equation
Price = 0.4*SF^3 translate: constant*SF^constant, the author is saying that the only variable matters in price/value discovery is Stock-to-flow. This is conceptually wrong since many things affect the price/value discovery. What if the world economy is in a recession? Is it a coincidence that there is no global recession in the past ten years.

Is it make sense to include: economic growth, inflation rate, risk-free rate?

Model R^2 is 95%: the model has a correlation of 95% with actual data. All other factors than SF, speculation included have an impact on the BTC valuation, but they account only for the residual 5% of the value. So, including them in this model (how?) only increases the forecasting capabilities of 5%. I think we can agree it's not worth the effort.
Regarding BigBoy89 observation I would add that the above consideration is for Bitcoin only. For altcoins I don't knwo what is driving the price, not SF for sure.

 
2. Model fit data or Data fit model?
Ideally, the researcher changes the models to fit the data. However, it's often difficult without "data treatment." Thus, in my limited observation, researchers tend to do the opposite, transforming the data to fit the model.

I'm one of the "don't transform your data" kind of guy.
All the data are publicly available and open to scrutiny on PlanB github. material errors have been found in the past, and author has been ready to adjust his model accordingly 8e.g. Silver stock to flow).
 

3. Real-world problem
The data capture real-world dynamics up to 2019 (assumed that the market is efficient). Therefore, if the researcher creates a model about it, he will find a model that captures the dynamics, well... up to 2019. The dynamics will certainly change in the future, thus making the model invalid for forecasting.

As I showed above, analysing data before the first halving , data collected in 2009-2012, correctly predicts price in 2019. Of course dynamics can change after 2019, but I guess that if it held during the wild ride from zero to 10K, it is probably going to stay strong in the future.

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October 15, 2019, 04:55:30 AM
Last edit: October 15, 2019, 08:54:15 AM by fillippone
 #22

Another tweet by PlanB detailing the Power Law Relationship:


Quote
A stock-to-flow 100 asset, being worth less than gold ... is like a planet 100 astro units from the sun, rotating faster around the sun than Pluto


https://twitter.com/100trillionusd/status/1183499046935322624?s=21

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October 17, 2019, 02:56:42 PM
Merited by babo (1)
 #23


Quote
We are at about 6 months before May 2020 #bitcoin halving.

In 2012 btc jumped from $5 to $12 (2.3x) in those 6 months before the halving. In 2016 btc jumped from $350 to $650 (1.7x).



https://twitter.com/100trillionusd/status/1184414286292160513?s=21

I think 2020 halvening will unfold differently from the pas ones, so I think it is hard to expect price to follow exactely the same part of 4 years ago.
The thing is that given the fact that PlanB published his work, a lot more people is looking at halvening, and the impact it is having on price via the SF ratio.
Lot of more professional investors are now in the arena, compared to 4 years ago.
So I would expect more people actually buying before the halvening, hence the post halvening bull run should be front run with a pre halvening bull run.
So, next months are critical!

Positive way of thinking: halving is not priced in yet: you can bargain BTC now!
Negative way of thinking: halving is priced in and there won’t be any rally for four years. Model has failed.

This is the big bet for 2020: if we will not have a very strong bull run, at later 12 months after the halvining thane the model will have failed. And this is going to push the price lower almost forever.
Otherwise brace yourself for moon.


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October 17, 2019, 03:48:18 PM
 #24

So. Um. TL;DR = 2023 $100k, 2028 $1m ? And some numbers in between. More or less.

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October 17, 2019, 04:00:19 PM
 #25

fillippone, I've been looking everywhere on the posts of PlanB - his tweets, his Medium posts. There was a prediction that sometime before or after the halving in May next year, he predicted the BTC price will be $50,000. Could you explain in layman's terms how he arrived with that number?


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fillippone
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October 17, 2019, 04:03:55 PM
 #26

So. Um. TL;DR = 2023 $100k, 2028 $1m ? And some numbers in between. More or less.

An image is worth a thousand words.


Twitter link

Every halving multiplies BTCUSD by a factor of 8.

fillippone, I've been looking everywhere on the posts of PlanB - his tweets, his Medium posts. There was a prediction that sometime before or after the halving in May next year, he predicted the BTC price will be $50,000. Could you explain in layman's terms how he arrived with that number?

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.
 

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October 17, 2019, 05:15:40 PM
 #27

So. Um. TL;DR = 2023 $100k, 2028 $1m ? And some numbers in between. More or less.

An image is worth a thousand words.


Twitter link

Every halving multiplies BTCUSD by a factor of 8.

fillippone, I've been looking everywhere on the posts of PlanB - his tweets, his Medium posts. There was a prediction that sometime before or after the halving in May next year, he predicted the BTC price will be $50,000. Could you explain in layman's terms how he arrived with that number?

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.
 

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?
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October 17, 2019, 05:21:24 PM
 #28

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

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October 17, 2019, 05:25:32 PM
 #29

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


Sure, no worries, not planning buys or sells based on this, just trying to understand the model assumptions and bounds.
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October 17, 2019, 05:39:55 PM
 #30

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

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October 17, 2019, 05:54:10 PM
 #31

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.

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.

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October 17, 2019, 06:28:09 PM
Last edit: October 17, 2019, 07:40:45 PM by JayJuanGee
Merited by fillippone (1)
 #32

No need to over think it. Just buy and buy until you can't.

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.


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.


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.

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

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.

Put BTC here: 35EVP8EePt8dyvKHaB7bXaRmKLm22YgRCA

How much alt coin diversification is necessary? if you are investing in Bitcoin, then perhaps 0%?
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October 17, 2019, 07:22:41 PM
 #33

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.

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October 17, 2019, 08:39:31 PM
 #34

<snip>
 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.


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!

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October 18, 2019, 06:43:16 PM
 #35

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

Quote
This very special Gold vs Bitcoin guest would ONLY agree to be interviewed if @RaoulGMI was asking the questions… and he could remain anonymous.

This is an absolute coup for Real Vision. Please welcome Plan₿ @100trillionUSD: rvtv.io/2BqGAO1

#gold #bitcoin

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


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October 18, 2019, 07:48:46 PM
 #36

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.)

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October 18, 2019, 08:25:41 PM
Last edit: November 06, 2019, 10:23:47 PM by fillippone
 #37

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.)
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.

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October 18, 2019, 08:50:39 PM
 #38

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/

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October 18, 2019, 09:07:29 PM
 #39

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

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October 19, 2019, 10:16:36 PM
Merited by fillippone (1)
 #40

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.

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