Stock-to-Flow Model: Modeling Bitcoin's Value with Scarcity

[JayJuanGee]

I don't believe in his S2F model TBVH but yeah, I can say that it's quite impressive here to see so many charts about the same and like LUCKMCFLY said, S2F has answers to almost everything but not the worst possibilities that may take place once the need of humans arise after a steep rise in inflation that's definitely going to take place considering the current amount of deaths taking place and evolving Coronavirus and its increasing number globally. This is such naturally (dead yet) powerful thing that can't be ignored and for the same, people will definitely want money to survive and for that, they'll try to FOMO sell after seeing a 27% dump in a day. I'm not bearish on BTC, but everyone here forgot a fact that BTC has gone dead a lot of times and it can again die till an area nobody would have thought of, before rising up again as a new Dawn. At that time, this S2F model will become valid again but I believe that things are going to change this time.

You mentioned several macro factors, current events and even public sentiment, but one of the aspects of stock to flow remains that it is NOT really accounting for the various factors that you mentioned, including that some peeps have criticized stock to flow by asserting that it fails to account for a variety of factors, including demand.. and it kind presumes steady demand.   I think that in the end, stock to flow is going to prove correct because it seems to largely be identifying the most important factors of bitcoin that likely drive bitcoin's ongoing price appreciation and dynamics and kind of shows why the honey badger does not seem to give a damn - meaning it does what it does in spite of a lot of factors that people try to measure and who either fail/refuse to account for factors that stock to flow emphasizes and largely seem to be what is actually driving bitcoin's price.

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[1714054710]

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[fillippone]

I don't believe in his S2F model TBVH but yeah, I can say that it's quite impressive here to see so many charts about the same and like LUCKMCFLY said, S2F has answers to almost everything but not the worst possibilities that may take place once the need of humans arise after a steep rise in inflation that's definitely going to take place considering the current amount of deaths taking place and evolving Coronavirus and its increasing number globally. This is such naturally (dead yet) powerful thing that can't be ignored and for the same, people will definitely want money to survive and for that, they'll try to FOMO sell after seeing a 27% dump in a day. I'm not bearish on BTC, but everyone here forgot a fact that BTC has gone dead a lot of times and it can again die till an area nobody would have thought of, before rising up again as a new Dawn. At that time, this S2F model will become valid again but I believe that things are going to change this time.

You mentioned several macro factors, current events and even public sentiment, but one of the aspects of stock to flow remains that it is NOT really accounting for the various factors that you mentioned, including that some peeps have criticized stock to flow by asserting that it fails to account for a variety of factors, including demand.. and it kind presumes steady demand.   I think that in the end, stock to flow is going to prove correct because it seems to largely be identifying the most important factors of bitcoin that likely drive bitcoin's ongoing price appreciation and dynamics and kind of shows why the honey badger does not seem to give a damn - meaning it does what it does in spite of a lot of factors that people try to measure and who either fail/refuse to account for factors that stock to flow emphasizes and largely seem to be what is actually driving bitcoin's price.

The correlation coefficient of the S2F model with underlying bitcoin price is north of 95%.
This means that every other factor influencing bitcoin has the power of explaining the residual 5%.
So you surely can adapt the model to take into account demand, mining hash power, institutional adoption, UTXO chain analysis, CSW claims, but all those factors, that are extremely difficult to factor in a model, would add only a tiny fraction of explaining power.

In addition remember that factors that could affect the price,m right not be taken into account on a model. Take the Black and Scholes model, where demand is not taken into account to determine the price of a derivative.

[franky1]

i find it real funny

most of the math that make up 'stock to flow' metric is averaging a yearly price. .. of averaging a 10 day price
so when seeing the yearly average price line and then saying 'oh look there is a relationship to daily price'... OF COURSE THERE IS
the average is definitely going to be within a 5% deviation.. because the price is only on average 10% volatile (5%up or 5% down)


stock to flow is not predicting anything. its just reformatting a price into a new line thats not the daily price but an averaged price.. so yes ofcourse the line would be within limits of the daily price

if you use a true coin generation/circulation metric. that does not include a price average or any math including the price.. and then set that against the price.. then you wont see the same pattern or correlation

the reason for the S2F correlation vs daily price has nothing to do with coin generation/circulation amounts. and everything to do with the 'average price' math they added into the metric

[FIFA worldcup]

i find it real funny

most of the math that make up 'stock to flow' metric is averaging a yearly price. .. of averaging a 10 day price
so when seeing the yearly average price line and then saying 'oh look there is a relationship to daily price'... OF COURSE THERE IS
the average is definitely going to be within a 5% deviation.. because the price is only on average 10% volatile (5%up or 5% down)


stock to flow is not predicting anything. its just reformatting a price into a new line thats not the daily price but an averaged price.. so yes ofcourse the line would be within limits of the daily price

if you use a true coin generation/circulation metric. that does not include a price average or any math including the price.. and then set that against the price.. then you wont see the same pattern or correlation

the reason for the S2F correlation vs daily price has nothing to do with coin generation/circulation amounts. and everything to do with the 'average price' math they added into the metric

Also i think that bitcoin does not fit in stock to flow model. Although Stock-to-Flow Model is applied on assets which have scarcity but i don't think bitcoin could follow this model because it is different in nature and also the demand of bitcoin is way too high. Bitcoin will rise much higher as predicted by S2F model.

[JayJuanGee]

i find it real funny

most of the math that make up 'stock to flow' metric is averaging a yearly price. .. of averaging a 10 day price
so when seeing the yearly average price line and then saying 'oh look there is a relationship to daily price'... OF COURSE THERE IS
the average is definitely going to be within a 5% deviation.. because the price is only on average 10% volatile (5%up or 5% down)


stock to flow is not predicting anything. its just reformatting a price into a new line thats not the daily price but an averaged price.. so yes ofcourse the line would be within limits of the daily price

if you use a true coin generation/circulation metric. that does not include a price average or any math including the price.. and then set that against the price.. then you wont see the same pattern or correlation

the reason for the S2F correlation vs daily price has nothing to do with coin generation/circulation amounts. and everything to do with the 'average price' math they added into the metric

Also i think that bitcoin does not fit in stock to flow model. Although Stock-to-Flow Model is applied on assets which have scarcity but i don't think bitcoin could follow this model because it is different in nature and also the demand of bitcoin is way too high. Bitcoin will rise much higher as predicted by S2F model.

Maybe I am understanding the matter erroneously, but if there is a suggestion that demand is meant to be held constant in the Stock to Flow Model because demand is a kind of "unknown" as compared to the other factors that are accounted, but if the demand ends up being much greater than the constant rate that the model assumes, then the model ends up considerably undershooting expectations.

And yeah of course, I appreciate the assertion that was made by fillippone in regards to all of the other factors ONLY adding up to less than 5% explanatory value but if the demand constant is actually more wrong in the future than it had been in the past, then the explanatory aspect of the demand value or even the whole model ends up becoming less than 95% because it failed to adequately account for a value that ends up changing in the future.

[fillippone]

Stock to Flow lands on the most nichilist, turbocapitalist website of the street: ZeroHedge


What Is The Stock-To-Flow Model And Why Do So Many Swear by It?

Proponents of Bitcoin's stock-to-flow model say it's an indicator of massive value in the future. Others say it's little more than pie-in-the-sky.

ZH relaunched a Decrypt.co article, illustrating the basics of the Model.
Nothing new for the avid reader of this thread, but obviously a step forward in educating people on the value proposition of bitcoin.

[Karartma1]

S2F needs this kind of exposure and apart form the modeling itself, it could easily become a self-fulfilling prophecy. Right now, S2F's been moving like a clockwork machine. If you zoom out the chart you can see how the price bounced on the Stock/Flow Light Blue line.

 

[fillippone]

When you read about stock to flow on Forbes, you feel the noises of the bitcoin newcomers at the gates!

Demystifying Bitcoin’s Remarkably Accurate Price Prediction Model, Stock-To-Flow

Additionally, there are some technical models that require an element of fundamental analysis to make sense. An example is Stock-to-Flow (S2F), one of the most accurate price prediction models that we have seen in crypto to date.

Before getting into the details of S2F, it is important to clear up one common misconception. Although it was popularized in crypto by the pseudonymous PlanB, who described himself to me as a Dutchman in his 40’s with degrees in law and economics who has spent the last 25 years in traditional finance, he did not create S2F. Instead, because of bitcoin’s intrinsic value as a deflationary asset he applied the metric to create a price prediction model that ties the value of an asset to its current S2F ratio.

The article is a good read, it poses a few questions partially answering them. The good reader of this thread understand how to answer those supposed fallacies of the model.
Definelty you can read it and address to your new liner to tickle them.

[fillippone]

I realised I didn't notice this last Episode of Stephan Livera with Plan B.



https://stephanlivera.com/episode/243/

Bitcoin price has been rising and some argue that it is tracking along with the S2F model! Others argue that this is statistically invalid. PlanB, pseudonymous analyst and creator of the S2F and S2FX models rejoins me on the show to talk:

• S2F and S2FX vs recent market action
• Critiques and spurious correlations
• Comparison with past cycles
• PlanB’s thoughts on whether this is the final cycle
• Macro factors – Tether
• Negative rates
• Cash and carry trade

This was by far one of the most intriguing podcast.
I strongly recommend you to listed to the whole podcast, but here one excerpt from the transcripts ( I think Stephan messed a little bit with the transcipt, waiting for him to fix them).


Cash and Carry

Stephan Livera [49:27]: As we are entering this whole Phase 5 thinking, are there any other broader macro themes that you think are worth commenting on in terms of things like, What other kinds of entities we might see entering the space? What kind of vigor will they be entering the space with? Will they be cautiously dipping their toe in, or will they start to really dive in in a more deep way to Bitcoin?

PlanB [50:02]: Two things I’d like to say about that: one is the institutional investors are really lining up now to buy Bitcoin! I’ve been invited almost weekly to join meetings with hedge funds, family offices, banks, insurance companies, to talk about Bitcoin, not only the stock to flow model, but just the whole Bitcoin thing and how you can buy it and how you can hedge it and how you have to look at it as an investor. So there’s really a lot of demand from investors, and one of the things that I find very interesting—also for myself — is the derivatives markets. So if you look at the futures market for example, you can now buy Bitcoin for, say, $35,000, and you can sell it at the same time for a year later — you can future sell it for more, I don’t know what the price is, but $36,000. So you get a certain $1,000 profit, you only have to wait for a year! And of course you give up your upside and you also have no downside so there’s really less risk, but you really have to know what you’re doing. But anyway, if you do it like that—it’s a cash and carry strategy — you can make a 20% return annualized, and that is the kind of returns that Warren Buffett and famous hedge funds get! But not banks or insurance companies — they’d be happy with maybe 5%. So 20% in an easy trade like that is something that cannot be ignored and is seen by more and more people, and some people pop their toes in the water and of course it works. It is too good to be true! And after that in a negative interest rate environment that I’m living in in Europe, -0.6%, you can actually borrow money for negative interest rates if you’re an institutional investor. But even as a private individual you can lend against your house for 1% or lend without collateral for 3%! Well if you use that money — and I’m advising not to do that, but for professional investors this is candy that is too good to be true! And then if we look at option markets, we see implied volatilities of over 100%, which means there’s call premiums from 40–50%. So you can do volatility harvesting strategies which are very very profitable and cannot be done on other asset markets! So the whole derivatives markets and the relation between the spot markets, derivatives markets, futures, options, etc., I’ll be watching them like a hawk—actually participating in them! I see a lot of people entering those trades and looking at it. I think the future and option market prices will give us a lot of information about the future, so it’s really interesting if the base rates of the futures stay that high, if the implied volatilities in the options markets stay that high, and yeah so that’s one thing that cannot be denied anymore by the more traditional investors and that will be seen by more and more. The other thing — it’s not so much investing but more society thing — it’s a very positive thing: good money, sound money is very important for humanity! It’s good for trade, it’s good for specialization, it’s good for capital allocation and allocation of scarce resources, where the investors were not. And to have sound money, a measure, a unit of account that can be counted upon, it can be depended upon, is very interesting! And very important! And we don’t have that at the moment, because central banks are printing the money at will, they’re using it for political purposes, they’re weaponizing it, and it’s like an architect that uses a measure like the meter or an inch that changes every day! Imagine how a building like that looks after the architects are finished! And that’s our economy at the moment! So we’re building with a measure that is changed every day, and Bitcoin will — for the first time — introduce a constant. And that is the 21 million coins. So that will for the first time ever, be a constant in finance like there is a constant in physics — the speed of light, for example. In mathematics. So that is from an Austrian perspective and I talked about this with Saifedean lately. It could be very interesting, this constant! And maybe with that comes a sort of predictability, but at least a totally different kind of economy, separation of money and state, and in my opinion it will even unleash the next Renaissance with science at the very heart of it, but also with art and freedom and a totally different society than we have at the moment that is dominated by governments and states. And this one will be more sovereign individual and math and art-based! So yeah I find that a very hopeful perspective, and that’s maybe, apart from the investing, the main reason why I find Bitcoin so very very interesting!

A lot of very interesting topics have been touched, I stongly recommend the whole episode!

[franky1]

its no prediction model. .. its more representative of a daily price vs average price
the whole stock part becomes meaningless as that is not really shown in any accuracy at all

so..
go take that S2f chart. grab the line data.. and remove the 'average yearly price' element..
then redraw the line without the price metric in the stock line. and see how suddenly it doesnt fit a pattern
then you will see its the 'average price' thats correlating not the stock change

or..
take any price chart
then take any other random factor n the universe. like the phases of the moon or ocean tide times..
add in the average price metric into this random factor.
and guess what you can make ocean tide times seem 95% accurate to the bitcoin price

[fillippone]

its no prediction model. .. its more representative of a daily price vs average price
the whole stock part becomes meaningless as that is not really shown in any accuracy at all

so..
go take that S2f chart. grab the line data.. and remove the 'average yearly price' element..
then redraw the line without the price metric in the stock line. and see how suddenly it doesnt fit a pattern
then you will see its the 'average price' thats correlating not the stock change

or..
take any price chart
then take any other random factor n the universe. like the phases of the moon or ocean tide times..
add in the average price metric into this random factor.
and guess what you can make ocean tide times seem 95% accurate to the bitcoin price

Sorry, I don’t get your point:
Has your model linking the ocean tides with bitcoin price the following features

• stable parameters calibrating the model over different time windows
• robustness in out-of-sample forecasting

If so, can you share with us?
I guess these are the unique feature of the stock to flow model, who gives us a good probability we are not looking at spurious correlations (something your post seems to suggest).

[fillippone]

Nice to see the Stock to Flow model not being violated in this dump.
The stock to Flow model has been undervaluing Bitcoin Market price.
Looking at the multiple Market Value /Model Value, we see that, while the maximum market value has been over 23 times the model price (only 3 times after 2017) during market pumps, the minimum value has never been below 0.5:




This means the market value has never been less than half of the model value.

According to digitalik.net, currently, the model prediction is 56,000 USD:



So, all is OK above 28,000.

Wow, During yesterday dip Market got to 29,000!

Almost perfect.
Maybe too much perfect.

[fillippone]

PlanB came out ot reassure everyone about his model:


https://twitter.com/100trillionusd/status/1396530823910789128?s=21



Here there are the 4 images in the tweet:


According to PlanB Price staying multiple months below 32K would mean the model broke.
So it is not an "instant" no go, but it is a prolonged stay below a 0.5 Stock to Flow Multiple.
Speaking of which, I have to figure out why the model price on this website is slightly different from digitalik.net.
I asked @PlanB himself in the comment, wondering if he will ever answer.

[acquafredda]

PlanB came out ot reassure everyone about his model:

https://twitter.com/100trillionusd/status/1396530823910789128?s=21


According to PlanB Price staying multiple months below 32K would mean the model broke.
So it is not an "instant" no go, but it is a prolonged stay below a 0.5 Stock to Flow Multiple.
Speaking of which, I have to figure out why the model price on this website is slightly different from digitalik.net.
I asked @PlanB himself in the comment, wondering if he will ever answer.

I do not think it is a question of how much the model has to reassure but rather of how much it represents the probable evolution in the future under certain conditions. It should not become a model of faith, there is no scientific truth behind it and I say this both to avoid future disappointments and for a bit of superstition that never hurts.

[icopress]

Seeing this thread, I immediately remembered that I had a document with a similar name on my PC for about 4 years ^{[Bayesian regression and its efficacy for predicting].} And the strangest thing is that I found only one mention on the forum (I guess I downloaded this document when I first came across it ... and forgot about it). Perhaps when I am less busy (it will be interesting for me to figure it out too), I will briefly describe this method in more detail, in the meantime, enjoy ...

• https://arxiv.org/pdf/1410.1231.pdf

[acquafredda]

Nobody who bought #bitcoin and Hodled for 4+ years (200 weeks) ever lost money, EVER.
Time to always put things into perspective.
Bitcoin cannot just increase its value by tracing a straight line.
Think about it: do you prefer a flat, monotonous life that takes you to the grave, or do you want to take part in the great rollercoaster that is life?
This is Bitcoin, always remember perspective!



https://twitter.com/100trillionUSD/status/1398222204123426816/photo/1

[JayJuanGee]

Nobody who bought #bitcoin and Hodled for 4+ years (200 weeks) ever lost money, EVER.
Time to always put things into perspective.
Bitcoin cannot just increase its value by tracing a straight line.
Think about it: do you prefer a flat, monotonous life that takes you to the grave, or do you want to take part in the great rollercoaster that is life?
This is Bitcoin, always remember perspective!



https://twitter.com/100trillionUSD/status/1398222204123426816/photo/1

I don't really disagree with you acquafredda - even though I would frame and even qualify matters a wee bit differently.

Sure, the bitcoin price has always been higher in any given time that is 4 years later.  Does not guarantee that such facts will continue to play out, but the past pattern of continued UPpity including even demonstrating that anyone new to bitcoin could buy at any price and have pretty decent assurances that 4 years later they will be in profits - even if they were to buy at the tippity top of whatever price exponential price rise blow-off top that has occurred.. and historically, this has worked out every single time.. so far.

Rather than calling bitcoin a rollercoaster of life, which is NOT untrue, I would suggest that what seems to be happening is the greatest wealth transfer in the life of man, and likely happening and continue to happen in a relatively peaceful way.. sure there will be some violence and battles along the way and even casualties, but there are also likely ways to lessen chances of being a casualty of such great wealth transfer and instead be a beneficiary of such wealth transfer.. even if happens to be a relatively poor person can stack sats in such a way to increase chances of being able to benefit a lot from such wealth transfer and maybe even spreading such wealth transfer across more than one generation as long as getting in, stacking sats, hodling, valuing wealth in bitcoin, etc etc..

[acquafredda]

And I do not disagree with you either, all the points you mention are true. I also tend to think as if Bitcoin could represent the greatest democratic money transfer in the history of human beings. Never before bitcoin it could have been possible to reach a wealth status only achievabel in generations.
I could not have been able to save they money I did with bitcoin, without bitcoin.

[JayJuanGee]

And I do not disagree with you either, all the points you mention are true. I also tend to think as if Bitcoin could represent the greatest democratic money transfer in the history of human beings. Never before bitcoin it could have been possible to reach a wealth status only achievabel in generations.
I could not have been able to save they money I did with bitcoin, without bitcoin.

Ain't that the truth.

There are seemingly a couple of aspect of bitcoin that have been very good for individuals and/or normies that had never really been previously available to such folks absent some quirky luck, which is being able to get into bitcoin without having a lot of capital, connections and/or time constraints.  Even getting in "early" for that matter.. without really being able to know for sure if it is "early" or not or if it continues to be "early" or not.... and even now, many of us are still proclaiming bitcoin to still be early even though there seems to be some ongoing resistance to the idea of either bitcoin being currently "early" and failure/refusal of a lot of normies to take action to get a stake in what seems to be a currently still "early" asset. 

Another aspect is BTC's historical price appreciation which those kinds of price appreciations had historically been reserved for insiders and/or folks with a lot of capital and connections... So, even relatively small investments into bitcoin have ended up allowing for situations in which some peeps were able to become way better off, become rich or to get rich as fuck in a relatively short period of time.  There are varying ways to play the fact that BTC has had a kind of overperformance component in the longer term in spite of seemingly scary ass short term volatility, and not always needing a lot of capital to profit a lot but of course, some of the more aggressive approaches in terms of investing in (rather than trading) would have increased chances of profiting even greater.

Of course, some of these seemingly great advantages with such a seemingly great UPside asymmetric asset class still can end up getting badly played by some of us normies in terms of NOT taking advantage of good situations that might be staring us right in the face by investing way too little, or leveraging and fucking up our investment through those kinds of gambling plays (that have been shown to be largely unnecessary in bitcoin in order to possibly get richie) or selling way too much BTC too soon.  So there could be some luck involved and/or at least some ideas of ongoing consistent and persistent hedging into bitcoin that ended up allowing for some otherwise normie poor peeps to become way better off, rich or rich as fuck.

Is this deviation from the topic?  Hm?  Maybe, maybe not.  Stock to flow remains one of the very important and seemingly currently valid BTC price prediction models that help to inform some of the BTC accumulators and HODLer  ideas about likely direction of the BTC price, and I personally suggest that planb/stock to flow is not necessarily saying anything different from some of his predecessors, but some of the input of the data and organizing it in a certain form has contributed quite greatly in terms of helping to discuss BTC price dynamics and likely future direction based on past performance.  Of course, stock to flow incorporates 4-year fractal, but I like to list 4 year fractal as a separate model and I also like to list s-curve adoption based on metcalfe principles and network effects as a separate model too.. just so some conceptual points can be emphasized and reemphasized, even if redundant in parts.

[dkbit98]

It might be a good idea to switch to new S2FX that is stock-to-flow model updated with cross asset that may be even more precise than regular S2F model we used so far.
PlanB removed time and included other assets like Gold and Silver in his calculation formulas, you can check his reasons for doing that in his medium post and go visit new s2fx model chart:
https://stats.buybitcoinworldwide.com/s2fx/