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On Bitcoin’s Convergence: Simplified, Part 1

On Bitcoin’s Convergence: Simplified, Part 1

You all remember this picture, right?

Bitcoin’s market value correlation with stock-to-flow. Source: Plan B’s Medium page: PlanB

If you don’t then you can go read about it on Plan B’s page: PlanB. If you do know what it is, let’s move on.

Plan B made that chart with Bitcoin monthly data. The same chart can be made using daily data:

The same chart, but using daily data instead of monthly data.

Again, this is the same plot as Plan B’s, but it is for all days since August 17th, 2010. Now, notice that the data is spread out on the lower left corner, and it is clustered in the upper right. Here, I’ve circled this:

the data is spread out at lower S/F ratios, and gets clustered at higher stock to flow ratios.

Interesting. Another thing that can be done is to show the same data as a multiple of the stock to flow model. So, for points above the diagonal line, they would have a multiple >1.0, and for points below the diagonal line they would have a multiple < 1.0 and greater than 0. We can also show the data with the x-axis as time, instead of x-axis as S/F ratio. So, that’s this chart here:

The same data points expressed as a multiple of the stock-to-flow model. The regression line is now the same as the middle horizontal line (multiple of 1.0).

Now the data points are ordered chronologically, and they are shown as a multiple of the stock-to-flow model. So, the linear regression line is now the middle horizontal line at the y-axis level of 1.0.

Do you see a pattern? Here, let me highlight some things:

The same plot with some highlights

Now the dates of the halvings are shown as vertical orange lines. Also, the all-time-highs and all-time-lows are circled. The circles are getting closer and closer with time to the middle line of 1.0, which is the S/F model. This is why the data points in figure 2 are spread out at the bottom left and are bunched closer to the linear f...

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