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Year-end 100,000? Introduction to PlanB's Stock-to-Flow Model, explaining the three major inconsistencies that caused it to deviate.

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Year-end 100,000? Introduction to PlanB

Bitcoin price analyst PlanB used his S2F (Stock-to-Flow) model last year to predict that the price of Bitcoin would reach $100,000 by the end of the year. However, as the new year has arrived, Bitcoin is still hovering below $50,000. PlanB maintains that the model is still valid. Cointelegraph has published an article today analyzing three reasons why the S2F model may be inaccurate.

Introduction to the S2F Model

The S2F model was originally used to measure the scarcity of commodities such as gold and silver, considering two variables: the existing supply Stock and the asset's annual production Flow. Because both the total amount and production of Bitcoin are clearly recorded on the blockchain, applying the S2F model to Bitcoin makes sense.

According to data from CoinGecko, there are currently 18.91 million Bitcoins mined, with an annual flow of 32.85 thousand. To calculate the S2F model, the existing supply and annual production of Bitcoin are divided (Stock/Flow), resulting in approximately 57.6 (18.91/32.85). In other words, without considering the total supply and the halving of production every four years, it would take nearly 58 years to mine the current BTC existing supply.

For Bitcoin, the higher the calculated number, the more it can ensure the long-term value of the asset. This is because the asset is not only scarce but also requires a significant amount of time to mine the remaining supply. PlanB compares the Bitcoin S2F model with price and uses the Power Law for linear regression to potentially predict its future value changes.

Three Major Flaws

However, as the new year arrives, Bitcoin continues to fluctuate below $50,000, signaling the failure of the S2F model. Cointelegraph has identified three major flaws in this model.

1. How to Prove Bitcoin's Price Will Increase Infinitely?

According to the S2F model, Bitcoin's price is projected to reach $1 billion by 2039, with a market cap of $20,000 trillion, approximately 130 times the current stock market. Even looking at a more near future, the model predicts Bitcoin will surpass $10 million today in 10 years.

Even for Bitcoin enthusiasts, the assumptions of this model are still quite unbelievable.

2. S2F Model Only Considers Scarcity, Neglecting Market Demand

Bitcoin is no longer the only circulating cryptocurrency, as many new projects inevitably attract attention and investment, weakening its dominant position as the "digital gold."

The S2F model does not discuss the impact of market demand on price, only considering scarcity. However, the value of scarcity comes from people's desire for it. A model that does not consider scarcity is incomplete.

3. Logical Issues in Constructing the S2F Model

PlanB involves regression analysis in price prediction, but the results vary when regression is done at different times. For example, when using PlanB's method to calculate price prediction during the first or second halving of Bitcoin production, the resulting price prediction charts will all be altered.

These are the three major flaws identified in the article. Whether it is the belief in infinite price increases or the ignorance of demand, this model is deemed flawed. Rather than blindly trusting model predictions, it is better to be a friend of time and hold assets with long-term market demand.