Why PlanB’s S2F model is Flawed?
PlanB, a pseudonymous seller of Bitcoin’s “stock-to-flow” price model, has offered to invalidate his forecast if BTC does not reach $100,000 by December 2021. However, its February 2022, two months have passed, and Bitcoin is worth less than $45,000, having never reached those six figures.
In case you need a recap of PlanB’s S2F model
PlanB suggested that the predictability of Bitcoin’s circulating supply relative to mining production explains its phenomenal growth and allows for reliable forecasting of future pricing. It is based on the notion that it becomes more valuable when a commodity becomes scarcer. With a limited Bitcoin supply of 21 million, its value will rise with the increase in demand. As a result, as Bitcoin’s stock-to-flow (S2F) grows, so does its price. A quantitative analysis published on the website planbtc.com demonstrates the model and projection that Bitcoin (BTC) might reach $100 trillion in capitalization.
Here’s why PlanB’s prediction isn’t accurate
One billion Bitcoins would imply a valuation 130 times the present value of the stock markets. As per PlanB’s estimate, the value will climb tenfold in the next years, obviously absurd. The following reasons prove that PlanB’s S2F model has poor reasoning yet gained much attention and respect
- Since its inception in 2019, the S2F model has had various price forecasts, both short and long term. It forecasted that Bitcoin would be worth $30k in May 2021, $90k in September 2021, and $100k in January 2022, as shown in the chart below. Even though the model correctly predicted the coin price in May, it was wildly wrong about the September and January forecast when it was about $35k. So far, Bitcoin is unlikely to reach $100,000 any time soon. With bitcoin failing to reach such levels, the S2F model is deemed worthless.
- Another reason for the S2F model breakdown is when unexpected events occur, such as Elon Musk’s criticisms concerning Bitcoin’s energy use and China’s restriction on mining, both led the price to plunge.
- S2F assumes that bitcoin’s demand will continue to rise at an exponential rate. According to the concept, for Bitcoin to be worth a billion dollars, it would require almost four trillion wallets in circulation, which currently seems to be an improbable scenario. Indeed, bitcoin’s demand has often surpassed supply, explaining why its value has surged in the past years. The stock-to-flow model will be accurate as long as demand continues to expand at an exponential pace, as it has for the past decade. But bitcoin is no longer the sole cryptocurrency in use. Its supremacy is dwindling due to the numerous new projects that are grabbing attention. With Bitcoin reaching all-time highs, altcoins also have their place in the spotlight.
While Bitcoin may have defeated the stock market in 2021, other cryptocurrencies have surpassed it this year. According to a research firm Arcane’s report, Bitcoin’s performance has been overshadowed this year by the extraordinary growth of altcoins.
The stock-to-flow model has provided a novel perspective on bitcoin’s early, soaring years. It will, however, shortly fail since it anticipates continual doubling year after year.
Is there a model that is superior to S2F?
Developing a model that precisely forecasts BTC’s value in the future is as tricky as accurately forecasting the weather for the next five years. As a result, most quants should opt for a rough estimate rather than a precise prognosis to make realistic, fair investing decisions based on the assumptions. On the other hand, those who PlanB’s model duped might move on to achieve actual confidence in Bitcoin by learning about its features, network effects, and what distinguishes it from all other projects.
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