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

[fillippone]

PlanB tweeted the other day an interesting consideration on the Stock To Flow Cross Assets:


https://twitter.com/100trillionUSD/status/1453006360568811531?s=20

This is almost identical to a previous tweet, but it focuses on the relative performance of the two competing Store of Values.
As you can see, gold valuation barely moved during the last 10 years. Each year Valuation,, and SF is represented by single purple dots: those are almost impossible to distinguish from each other, meaning that gold has been steady in nominal terms during the last 10 years.

BTC, on the other hand, has been constantly catching up, crawling upward on the SF/Market Capitalisation regression line.


EDIT: relevant Meme:

[1714982346]

1714982346

[1714982346]

1714982346

[fillippone]

Another great interview of PlanB with Preysto Pyhs:

BTC048: Does the Stock to Flow Model Eventually Break w/ Plan B

Preston Pysh talks with renowned analyst, Plan B. He talks about whether the Stock to Flow Model will eventually fail, along with numerous other macro insights.

IN THIS EPISODE, YOU'LL LEARN:
00:00 - Intro
02:09 - What’s Happening in the Broader Macro Economy From His Perspective?
16:28 - Will the Stock to Flow Model Eventually Fail?
28:21 - Regional Trends - Specifically With Proof of Work
33:52 - When Will More Countries Start to Adopt It?
37:07 - Is the ETF important?
41:19 - Lightning Adoption, What’s the Impact?
46:07 - Would Plan B Ever Reveal Himself?

It's a great conversation. I strongly suggest you to listen to in in the full length.
Two points stands out:

Preston Pysh (22:40):

As we’re going through this transition, you were describing it earlier with China, they’re buying anything that has scarcity to it as soon as they can, with the dollars they’re receiving, because it’s going to retain their buying power as whatever this thing is that’s transitioning takes place, and on the other side, that buying power is still going to be there for whatever the scarce thing is that they purchased.

Preston Pysh (23:03):

This goes for anybody on the individual level, country level, whatever, but I really think that we’re going to eventually get to a point where there’s going to be so much demand for people to store their buying power in this thing that is everything and is nothing. Whether the stock-to-flow is slightly above real estate or slightly above gold, I think you’re just going to get to a point where there’s just total FOMO of, I can’t store $10 billion worth of buying power in this bond anymore, as it’s yielding negative whatever percent. I just see that whole fixed income $200, $300 trillion worth of buying power today just evaporating and getting sucked in like a black hole and it’s going to send the curve just in a parabolic kind of direction.

Plan B (23:53):

I agree. I fully agree. Real estate is not fungible, and it’s not portable either. All those dimensions, Bitcoin is the better money. On the other hand, the only thing where we differ, I guess, is the timing of the events. Yes, the dollar will die. Every reserve currency dies, it’s a certainty. There will be something new, something better. But when is that happening? It’s the same question as the supercycle, are we entering the supercycle now or later?

Plan B (24:23):

I think the supercycle will be there, it’s inevitable, but not now. I think it will happen after next halfing, if you will, after the stock-to-flow of Bitcoins will be higher than gold and higher than real estate. Because until that point of stock-to-flow of 100, real estate will, for whatever reason, be the preferred asset as we’re seeing right now.

Plan B (24:46):

I’m seeing around me, people put more money in real estate like hundreds of millions. BlackRock, for example is buying the entire city of Amsterdam because those companies and the money right now is with old people. They have real estate and the gold, the physical world and not the digital world. The digital scarcity is a next generation thing.

Plan B (25:06):

I think it will happen. But I also see, in my own model, that there is a linear relationship between scarcity and value. I agree that is one of the dimensions of money, fungibility is the other one, portability is another one, divisibility is another one. That’s also a very problematic with houses, divisibility. But scarcity is, in my view, the most important factor, causing that linear relationship and causing people to put more money in real estate now, that will change next to divisibility, fungibility, portability, also the scarcity of Bitcoin will be better than real estate.

Plan B (25:46):

My guess would be, I’m probably going into that question right now, are we going into this FOMO hyperbolic scenario right now or next year, or the year after, or are we going to drop 80% first have a big war with the powers that be, the central banks, the US dollar, et cetera, et cetera, and go into that hyperbolic scenario, or a US dollar scenario, if you will where Bitcoin is the best store of value after the next halfing. So, say 2024, or ’28, that will be the period or maybe a little bit after that. Let’s say somewhere between 2024 and 2032. Yes, I think we both agree there will be this hyperbolic scenario. Bitcoin will be by far the best asset physically, dynamically, mathematically, above all other, but the powers that be, with the largest armies, the biggest balance sheets, and all the political power, they will fight, they will fight till the death.

Going a little bit oustidethe bitcoin only scenario:

Preston Pysh (06:49):

New people that are maybe just coming into the space would hear that, and they would say, well… I’m playing the contrarian here, I know you’re going to knock this question out of the ballpark, but I think it’s important for education purposes for people. A person would be hearing all that, and they’d say, well, you just had a global pandemic, they had to print all this money, and this is just a spike. They’re not going to be printing $4.5 trillion in the coming years like they did for, I think that was the number that you said, for COVID. Some of this stuff will start to normalize. It just needs more time. You see the big time banks, I think it was JP Morgan come out and say, oh, supply chain issue is going to be resolved here in six months from now. Why is that wrong, in your opinion?

Plan B (07:37):

First, from a logical point of view, if printing money was the solution for these problems, then like I said, Zimbabwe would be the richest country in the world, and every country would be doing it. Of course, that’s that’s not true. Through the ages as well, the Roman Empire died, part of because the debasement of the currency, the printing of the money. It was the denarius at the time. So, the silver content was diminished from 90% to 0%. That caused big, big troubles, because nobody accepted that money anymore, because it was like Monopoly money. That’s one.

Plan B (08:11):

But on the other hand, the debt that the US is creating to keep the dollar going, to keep the government going, to keep everything going, and the same in Europe, by the way, but the US, of course, is the reserve currency, that debt is someone else’s asset. The asset can be in the pension fund, it can be… Well, most of US debt, by the way, is owned by China, right? China is making all this stuff for the world, for the US, earning a lot of money, but then parking that money in the treasury bonds, so in the debt of the US government, and that debt, of course, we all know that, all institutional investors know US debt will never, ever be paid off. We all know that. But we also know there will be new debt, there will be an extra credit card, if you will to pay off the old credit card. As long as that goes on, that’s all fine, but it cannot go on.

Preston Pysh (09:05):

It requires rates to keep going down.

Plan B (09:08):

If you would increase interest rate right now the debt would be unserviceable. The US could not pay the debt when interest rises with the current tax income. It’s unsustainable, they have to keep rates low and keep decreasing them or the whole house of cards will fall down. Of course, China sees that as well, because imagine that you have all this US debt and you see that the debt is printing his own money and you know it will be worthless one day.

Plan B (09:37):

What will you do? You’ll spend it like a madman and you see them doing that. They buy every gold mine, every scarce commodity mine in Africa, they buy all the harbors in the Middle East, in Europe even, they buy everything with the US dollars that they have, except more US debt, of course. That’s a smart thing. By printing and printing more, the US is actually making China stronger and stronger every day.

[paxmao]

As they say, past return do not guarantee future returns. I like to extend this say to forecasting models, "predictions in the past do not guarantee predictions in the future". I have to admit that anyway, due to the unpredictability of bitcoin demand, this model does reasonably well. If I had to use something or would really care about the price in the mid-term, I would be my choice as of now. The fact remains that bitcoin is expected, by most people, to grow at a slower pace than in the past, but I am betting on an exceptional long term growth to which this model seems to agree.

[fillippone]

As they say, past return do not guarantee future returns. I like to extend this say to forecasting models, "predictions in the past do not guarantee predictions in the future". I have to admit that anyway, due to the unpredictability of bitcoin demand, this model does reasonably well. If I had to use something or would really care about the price in the mid-term, I would be my choice as of now. The fact remains that bitcoin is expected, by most people, to grow at a slower pace than in the past, but I am betting on an exceptional long term growth to which this model seems to agree.

This model was fitted only on a subset of the then available data, and had a forecasting power on following data, with minimal parameters adjustments.
This means the price dynamic is quite well predicted by model, so, in a sense, predictions in the past actually predicted the future!".

[STT]

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.

[JayJuanGee]

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.

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.

[fillippone]

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

Plan B (pseudonymous quant) rejoins me on the show to talk about how the S2F model is going and whether it will be a problem if Bitcoin does not hit $100k by the end of 2021. In this conversation we get into:

Spelling out the different types of models PlanB uses and talks about
Failure conditions for the model
The Floor model
Are we going to supercycle?
When does the S2F model fully break down?

[naim027]

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

[paxmao]

As they say, past return do not guarantee future returns. I like to extend this say to forecasting models, "predictions in the past do not guarantee predictions in the future". I have to admit that anyway, due to the unpredictability of bitcoin demand, this model does reasonably well. If I had to use something or would really care about the price in the mid-term, I would be my choice as of now. The fact remains that bitcoin is expected, by most people, to grow at a slower pace than in the past, but I am betting on an exceptional long term growth to which this model seems to agree.

This model was fitted only on a subset of the then available data, and had a forecasting power on following data, with minimal parameters adjustments.
This means the price dynamic is quite well predicted by model, so, in a sense, predictions in the past actually predicted the future!".

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.

[fillippone]

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

[paxmao]

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.

[coolcoinz]

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.

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.

[uchegod-21]

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 -

Question one- Volatility question:
I understand that bitcoin volatility is caused by demand and supply. Then, there is fixed 21million supply, if the 21million bitcoin is mined, will it make bitcoin price to be stable? Because there will be no more demand, there will be no more supply. The bitcoin in circulation will keep circulating.

PlanB explanation below and the more link, gave me an extended answer.

PlanB: Yeah, that’s also a discussion on Twitter, lots of questions about exactly this infinite value if you wish. If you follow the table, we could go all the way to 2140 when the flow is zero, when there’s no more new bitcoins, only fees. And the theoretical value how to Stock-to-Flow model would be infinite. So how can that be? And basically I think this is a very theoretical argument

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.

PlanB: You cannot change the money supply or change that magic 21 million coins number, and if you do you’re basically hard-forking away from Bitcoin. And, yeah, I guess nobody will follow you. A bit like Bitcoin Cash with the big blocks. Yeah, but you can do it, but don’t expect people to follow you

Again, it was said in the article that Ripple and other altcoins that doesn't use PoW do not have security.

So for example, Ripple again has no proof-of-work or Bitcoin Cash has almost no hash rate, so no 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.

[tertius993]

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?

[fillippone]

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?

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.

[tertius993]

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?

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.

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!

[d5000]

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.

[JayJuanGee]

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).

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.

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.

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.

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.

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.

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.

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.

 

Let's bury Stock-to-Flow pacifically and get over it.

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.

Bitcoin doesn't need this.

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)
 

It can grow organically without permabullish "mathematical" assumptions with questionable validity.

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.

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.

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?

[uchegod-21]

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 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.

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

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.

[d5000]

disgruntledness

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

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.

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.

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.

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.

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..

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.

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.

Let's talk again in 2025

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.

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.

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, [...] 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?

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