One of the most fascinating aspects of Bitcoin is its historical meteoric price rise. Will Bitcoin continue this trajectory, or will growth slow—or even halt?
The stock-to-flow (S2F) model, proposed by PlanB, suggests Bitcoin's future price can be forecasted roughly, with projections of ~10x returns every four years. This model has garnered significant attention, with PlanB amassing 1.7 million followers (at the time of writing).
Despite its popularity, the S2F model has faced criticism. For example:
- A recent article in Bitcoin Magazine harshly criticized the model.
- In July 2020, Eric Wall compiled a list of critiques.
Most opinions fall into two camps: pro-S2F or anti-S2F. Where should we stand?
My Perspective
I’ve been skeptical of the S2F model since 2019, predicting its forecasts would prove too bullish. I’ve debated PlanB publicly (e.g., here) and privately, and co-authored a mathematical analysis with InTheLoop explaining why the model overestimates growth.
However, some criticisms are invalid or overstated. Clarity is crucial—being right for the right reasons ensures future accuracy.
The S2F Model Explained
The S2F model posits that Bitcoin’s price is driven by scarcity. Halvings reduce new supply, increasing scarcity and price. Mathematically, it predicts:
- $100K/BTC this halving epoch
- $1M/BTC next epoch
- And so on.
Criticisms Debunked
1. "Tautological Specification"
Critics claim the model is circular ("market value = function of stock-to-flow"), implying "stock is a function of stock."
👉 Reality check: Rearranging the equation shows price depends on stock and flow—not a tautology. Modeling price directly yields nearly identical results, proving the argument moot.
2. Autocorrelations
Some argue daily stock-to-flow changes don’t correlate with price changes, invalidating causality.
👉 Counterpoint: Large S2F changes occur only at halvings. Expecting linear daily responses is unrealistic—only major shifts may matter.
3. Ad Hominems
Critics attack PlanB’s Twitter behavior (e.g., blocking dissenters).
👉 Response: This says nothing about the model’s validity. My interactions with PlanB have been respectful.
4. Lack of Cointegration
A debated lack of cointegration between S2F and price was deemed a "death blow."
👉 Context: Even Judea Pearl (causal statistics pioneer) found cointegration’s relevance unclear. Its absence doesn’t disprove causality.
Empirical Evidence Against S2F
Diminishing Returns
My power-law corridor of growth model shows Bitcoin’s growth slows over time (logarithmic scaling). Forecasts from 2019 (orange line below) predicted more accurate trajectories than nondiminishing-growth models (green line):
2019 Prediction vs. Reality:
- S2F (green) overestimated post-2020 prices.
- Diminishing-returns (orange) aligned closer to actual prices (red).
S2F Multiple Trend
The S2F multiple (price vs. S2F forecast) has historically declined post-2015, suggesting the model’s curve doesn’t fit real data well.
Future Outlook:
- I project continued deviation from S2F forecasts.
- $100K/BTC likely between 2021–2028; $1M/BTC between 2028–2037.
FAQs
1. Is the S2F model completely wrong?
Not entirely—it highlights scarcity’s role but overestimates growth by ignoring diminishing returns.
2. Why do halvings matter if S2F is flawed?
Halvings reduce new supply, but price growth slows over time due to market maturity.
3. What’s a better alternative to S2F?
Models incorporating diminishing returns (e.g., power-law corridors) better match historical data.
👉 Explore Bitcoin trends for deeper insights.
4. Will Bitcoin still reach $100K+?
Yes, but likely slower than S2F predicts—likely post-2024.
5. How should investors use S2F?
As a rough heuristic, not a precise tool. Combine with other indicators.
Conclusion
While the S2F model isn’t invalidated by flawed critiques, its nondiminishing-growth assumption conflicts with empirical data. Bitcoin’s price will rise—but more slowly than S2F projects.
Final Thought: Bright days lie ahead for Bitcoin, but patience is key.
Guest post by Christopher Burger. Opinions are his own.