Follow @BTC_Home or visit BTCHome.caThere are three kinds of lies: lies, damned lies, and statistics — Mark Twain
Original Stock to Flow Model
On Mar 22, 2019 a pseudonymous individual under the handle PlanB published an article Modeling Bitcoin Value with Scarcity
In the article PlanB argues that the price of Bitcoin is based solely on its Stock-to-Flow ratio, meaning existing inventory (Stock) divided by yearly production (Flow), measured in years, he concludes:A statistically significant relationship between stock-to-flow and market value exists. The likelihood that the relationship between stock-to-flow and market value is caused by chance is close to zero. PlanB presented a graph that at a first glance appears that Bitcoin Price has a strong correlation with S2F.
Looking at the PlanB’s chart without further investigation, it appears quite convincing. We‘ll get back to this chart in some more detail later on in this article.
Cross Asset Model (the follow up)
On Apr 27, 2020 PlanB followed up with another article Bitcoin Stock-to-Flow Cross Asset Model
In his second article PlanB suggests that Bitcoin is transitioning through various phases, from Proof-of-Concept to Payments to Digital Gold and then to a Financial Asset.
He then proceeds to illustrate that those different phases are not only strongly correlated between themselves, but also strongly correlated with Gold and Silver.Once again this looks quite convincing, especially considering an impressive R2 of 99.678%
PlanB then makes the following conclusion:I have explained the concept of phase transitions. Phase transitions introduce a new way of thinking about BTC and S2F. It led me to the S2FX model.
If you pay attention to the transition from S2F to S2FX, you would notice that the narrative changed from:
S2F: Bitcoin price is solel...