The stock-to-flow model that’s allegedly been behind bitcoin for some time is seemingly driving many analysts and industry experts insane. Apparently, there are arguments regarding the accuracy and effectiveness of the model, and it looks like the world of bitcoin is strongly divided over whether it works or even suggestive of bitcoin’s recent gains.
Stock-to-Flow Isn’t Convincing Everyone
The model comes by way of anonymous analyst Plan B, who is frequently on Twitter not only pushing the plan but advocating for bitcoin. He is accusing many analysts of trying to unveil his identity, and he’s taking issue with the many criticisms he’s been receiving. Among those bashing the plan is Alex Kruger, an economist and crypto analyst. In a recent interview, he states:
The [stock-to-flow] model is based on the most fundamental errors which render it absolutely useless… The whole model rests on the wrong assumption that there is cointegration [a long-running relationship between two or more variables] between price and scarcity.
The stock-to-flow model determines that the price of bitcoin often changes or moves up depending on bitcoin’s scarcity. As it stands, the rarity of bitcoin is at level 50 following the third halving, which occurred last May. The mining rewards were cut in half, making the world’s number one cryptocurrency by market cap far less common and in less circulation.
Kruger’s problem with the model is that rarity, he presumes, cannot be used to determine the bitcoin price, which he says tends to go up “programmatically.” He explains that it’s potentially wrong to assume there’s any relationship between the two factors, mentioning:
The beauty of the model is that it’s open-ended. You can always keep pushing the deadline until you find what you’re looking for. True believers will hold [their bitcoin] no matter what. There are others that will get wrecked when the model is completely off, and they’ll try to recoup their losses.
Another individual who’s looking to strike down the idea of stock-to-flow is Cory Klippsten, the chief executive of bitcoin buying application Swan Bitcoin. Klippsten has stated that Plan B has posted wrong information on social media in the past as a means of ensuring people remain bullish. However, he later immediately deletes so his reputation remains stable. He comments:
It’s extremely important to be bullish for the right reasons. Otherwise, you’ll have weak hands when your belief is proven false.
Some Support Ahead
But across the planes, there is some support coming for Plan B and his assertive plan. Figures like Adam Back, the founder of Blockstream in Canada, explained on Twitter:
One should think about @100trillionUSD’s S2F model like Moore’s Law. It’s just an observation and speculative projection an observed trend may continue… [The stock-to-flow model’s] predictions should not be relied upon as an exact estimate. What the model does do is give us some evidence to show [stock-to-flow] is an important variable in understanding bitcoin value.