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Bitcoin: Stock-to-Flow model could put thousands of traders at risk?

  • A report by Strix Leviathan refutes the validity of the Stock-to-Flow model that predicts a Bitcoin price of around $100,000 by 2021.
  • Bitcoin Whale, Joe007, accuses the Stock-to-Flow model of being a potential danger to thousands of traders. 

The Strix Leviathan investment fund has published a report that refutes the Stock-to-Flow (S2F) model which attempts to predict Bitcoin price. The report analyzes possible scenarios for Bitcoin in the face of the spread of the coronavirus pandemic (COVID-19) and the volatility of the global market. Moreover, the report focuses on what is considered the biggest event for Bitcoin in the short term, the Halving.

The stock-to-flow model evaluates  the relationship between the scarcity of an asset and its current supply in relation to the volume of production. The ratio shows how many years it will take for production to reach available stock. By analyzing this data, the S2F concludes that there is a direct relationship between this figure and the price of an asset. Accordingly, the model also predicts a strongly positive development of the BTC price, especially in terms of the Halving.

Bitcoin’s Stock-to-Flow has flaws

Looking at possible Bitcoin scenarios around the Halving, Strix Leviathan’s report refers to S2F and its flaws. The report states that the model created by the analyst Plan B is based on two false assumptions. These assumptions prevent it from making an accurate prediction in the long term.

Firstly, the report refutes that the Bitcoin miners have sold or are selling most of the Bitcoin they receive as a reward. According to Strix Leviathan, the miners use their rewards to speculate and borrow on Bitcoin to expand their operations. While it is common knowledge that the recent price decline has caused a significant number of miners to cease operations, the report suggests that the impact of this decline, and specifically the effect on the Halving, is uncertain.

On the other hand, the report dismantles the basis of the S2F and states that Bitcoin’s supply schedule is not a variable:

Bitcoin’s supply schedule is the major selling point by crypto-evangelists and arguably the only selling point that has any value. Market participants have been anticipating this Halving and all future Halvings since 2009 when there was only one participant.

Despite this, the creator of the S2F model continues to defend his model. Via his Twitter account, Plan B has reiterated that it is useful to have a model that comes close to making a prediction about BTC’s price. He also acknowledges that the S2F is not the most accurate model, but its “order of magnitude is correct”.

The infamous Bitcoin whale, Joey007, has also openly opposed the model proposed by Plan B. The whale, a well-known member of the crypto-community, recently said that S2F is a “waste of time” as it cannot make any predictions. In addition, Joey007 said the model is posing a potential threat to thousands of traders who:

(…) don’t understand statistics and substitute DYOR by varied guru dictums. Of course, you can always say “Fuck these idiots!”

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Reynaldo Marquez has closely followed the growth of Bitcoin and blockchain technology since 2016. He has since worked as a columnist on crypto coins covering advances, falls and rises in the market, bifurcations and developments. He believes that crypto coins and blockchain technology will have a great positive impact on people's lives.

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