Unreliable models? – It has been more than ten years since Bitcoin (BTC) exist. As it evolved, there have been many models that have attempted to predict the course of the asset’s price over the long term. Unfortunately, these can be inaccurate, as Ethereum co-founder Vitalik Buterin recently pointed out.
Stock-to-flow: a model to predict the price of Bitcoin
the stock-to-flow or S2F is a model popularized by pseudonymous investor PlanB. This model aims to predict the price of Bitcoin over the long term. It quantifies the value of Bitcoin based on the programmed scarcity of the asset.
In practice, this is a relationship between two data:
- the Stocki.e. the existing reserve quantity;
- the Flowi.e. the annual rate of production.
Often used by the crypto community, stock-to-flow predicts that the price of Bitcoin will continue to rise until it reaches one million dollars around 2030. This type of model is commonly used to quantify the value of assets with limited reserves such as gold or silver.
Vitalik Buterin questions the S2F model
Obviously, like any model, this one can lack precision. Thus, despite a trajectory very close to the predictions, the Bitcoin price has deviated from theory several times.
This is particularly the case for the current price of Bitcoin, which is trading around $20,000, while it should be close to $100,000 according to the model.
Several divergences, both upwards and downwards, were recorded in 2011, 2014 and 2018.
According Vitalik Buterinthis discrepancy is proof that this type of model can be dangerous.
This one happened Express on Twitter after a sharp break in the Bitcoin trend compared to the S2F predictions.
” I know it’s rude to gloat and all that, but I think financial models that give people a false sense of certainty and predestination that the numbers are going to keep going up are harmful and deserve all the ridicule that they receive. »
A lack of macroeconomic context
Indeed, this model composes with a reduced number of parameters. Consequently, the mood swings of the FED and the macroeconomic contexts, which nevertheless have a significant influence on the price of Bitcoin, are not reported there.
A fact highlighted by Peter McCormack on Twitter :
” I wonder what the model would have looked like without the macro backdrop or cryptocurrency crashes like Luna’s. I think the model cannot take into account certain externalities. »
This reflection hasresulted in a response from PlanBthe creator and evangelizer of the model:
“Correct, the model only considers the scarcity/S2F ratio, it’s the only input to the model. Everything else, demand, macro, crypto, COVID, war, etc. causes deviations. The model is VERY approximate. In addition, the current extreme macroeconomic context means that all metrics (rsi, 200wma, etc.) show extreme values. »
Indeed, the S2F is not the only model to demonstrate extreme values. Thus, many technical analysis tools have recently reached unprecedented levels.
For example, the sacrosanct200WMA (200 week moving average) has also entered hitherto unexplored territories.
Indeed, the price of Bitcoin for the first time closed below the 200WMA curve, an unprecedented event since 2011. In these uncertain times, caution is the mother of surety.
The regulatory environment is also extremely uncertain. Thus, the European Union has returned to the attack by resuming discussions around the Mica law, in particular following the fall of the Terra Luna UST.
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