Vitalik Buterin Calls Popular Bitcoin Stock-to-Flow (S2F) Model “Rationalized bulls—t”
- “Event X (including stock-to-flow model) will make crypto go (up | down) are post-hoc rationalized bullshit,” – Ethereum co-founder Vitalik Buterin
- “The proven cointegration is still there everybody can verify it, until you prove it wrong” – PlanB who uses S2F model to determine BTC value
- Last week, Trezor also posed a question on the model saying “using Stock-to-Flow to predict prices is absolute nonsense”
Ethereum co-founder Vitalik Buterin dissed the stock-to-flow model that puts bitcoin’s value at above $100k before Dec. 2021 based on its scarcity. According to this model, the reward halving in May 2020 will make the digital asset more scarce than gold.
Buterin took to Twitter on Thursday to comment,
“Your daily reminder that 95%+ of articles of the form “event X will make crypto go (up | down)” are post-hoc rationalized bullshit.”
In response to this, analyst PlanB, who first used this model to determine bitcoin value said,
“You can call stock-to-flow model rationalized bulls**t or absolute nonsense but that's not how math/stats works: the proven cointegration is still there, everybody can verify it, until you prove it wrong. But I get Vitalik: liking S2F = saying ETH has no value, ofc he is a critic”
Bitcoin price has been following the Stock-to-flow model over its past 10-year journey even the ongoing crash below $8,500 has been “spot on model value”.
Is #bitcoin bullish or bearish? According to the #s2f model, its about bang on where its meant to be. Look at the likelihood. The low likelihood points are becoming less frequent. bullish imo. Remember blue + low=undervalued. Red/orange + low=overvalued. https://t.co/0u2P3racCM pic.twitter.com/PNE5y8e6Lm
— Nick (@btconometrics) February 27, 2020
Using Stock-to-Flow to predict prices is absolute nonsense
Buterin is not alone in criticizing the model, many analysts have done so. The most recent one has been by crypto hardware wallet manufacturer Trezor.
Although mathematically the model looked “convincing” and the idea behind it was impressive, “using Stock-to-Flow to predict prices is absolute nonsense,” states the blog.
It argues that the price is the result of supply and demand. But the stock-to-flow model only takes the supply side into account. “If the demand for Bitcoin falls, the price will drop even at the same Stock-to-Flow.”
The article illustrates Bitcoin fork Bitcoin Cash for which the model doesn’t work because there isn’t any demand for it.
“If we knew Bitcoin had to moon because of the magical Stock-to-Flow and shoot up ten times with every halving, why aren’t we there yet?” The blog further argued that the model puts bitcoin value higher than the GDP of all countries in the world in a few decades. And sometime in future, an infinite value, “then a negative price of Bitcoin.”
The analyst PlanB has previously called that phase to be hyperbitconization when the dollar would fail to be used to measure bitcoin value. Trezor said,
“Scarcity is a necessary but not sufficient condition of value. The Stock-to-Flow model correctly draws attention to scarcity but omits the second necessary variable from the equation. As a result, it is unusable to predict the price and remains just a wish of all Bitcoin fans.”