Economist Alex Krüger Strikes at Bitcoin Stock-To-Flow (S2F) Model Again
PlanB’s Stock-to-Flow is one of the most popular models in the bitcoin market. Much of the popularity and devotion to the model could be attributed to its price target. This scarcity-based model predicts bitcoin’s value over $100,000 before December 2021.
And the opposers of this model have voiced the “cult around S2F” the very reason for their disagreement.
“Selling S2F as having absolute predictive power is not only ‘waste of time', it's dangerous for tens (hundreds?) of thousands of retail crypto traders who don't understand statistics and substitute DYOR by varied guru dictums,” previously said Bitfinex Bitcoin whale Joe007 who has long been criticizing the model.
In PlanB’s defense, he does acknowledge the opposing views and encourages the community to read the analysis of those who have contending views.
Not everybody accepts the significant statistical relationship between #bitcoin price and halvings & stock-to-flow. Make sure you also read the analysis of people opposed to S2F model: @UfukInceCFA @ercwl @krugermacro @francispouliot_ @nic__carter @AtlasPulse @SGBarbour @Ragnarly pic.twitter.com/Rih85P6QZm
— PlanB (@100trillionUSD) April 13, 2020
But given that the bitcoin market is still a speculative one, people remain more interested in the information pieces that talk about prices mooning to million dollars.
Recently, the quant analyst updated his model to include the BTC S2F cross-asset (S2FX) model that takes phases of an asset into account and enables valuation of different assets like silver, gold, and BTC with one formula.
“S2FX model shows a significant relationship between S2F and market value of these six assets (low p-Values F-test and low p-Values coefficients) with a perfect fit (99.7% R2),” wrote PlanB.
Notably, it also projects a higher Bitcoin value in the next bull cycle at $288,000.
"Math is useful only when it’s applied correctly to phenomenon. It’s mental masturbation otherwise."
Can't say it better. Instant follow! https://t.co/rOKwGzuqNj
— ᴹᵁᴴ𝔍𝔬𝔢⁰⁰⁷ 🐳 (@J0E007) April 12, 2020
May as well use Moon Cycles to Predict BTC Price
Economist and trader Alex Kruger, who is also an S2F model critic and believes it to be “massively overhyped” yet again took to Twitter to share his opposing views including this model cannot be used to predict BTC price.
Those using S2F to predict bitcoin may as well be using the moon cycles to predict BTC, he said.
Bitcoin's Stock to Flow and Price are NOT cointegrated.
Therefore the Stock to Flow model has no predictive power.
=> Stock to Flow cannot be used to predict price.
Stock to Flow and Price are NOT cointegrated because Stock to Flow is not a unit root process, i.e. not random.
— Alex Krüger (@krugermacro) April 29, 2020
He pointed to Sebastian Kripfganz, Assistant Professor in Econometrics at the University of Exeter who “debunked” the cointegration by arguing that considerations can only be among non-stationary variables and S2F is a stationary variable.
Kruger’s personal arguments are based on the S2F not being a stochastic process, “not random, but rather deterministic.” It is rather based on a spurious regression with a high r-squared.
However, PlanB mentions in his article that “many have verified the non-spurious relationship between S2F and BTC price.”
“The S2F analysis is interesting. But the S2F model is useless for predicting price, as the underlying assumptions of the model are not met. Now and always,” concluded Kruger.
But according to PlanB, the economist is “jumping to conclusions too fast” that involves “zero analysis.”
What the analyst is interested in is an article with his analysis, data, and reasoning. As per Kruger, “Stock to Flow and Price are NOT cointegrated because Stock to Flow is not a unit root process, i.e. not random” will be here before the halving.