Why Is PlanB’s Stock-to-Flow Model Unreliable?

PlanB’s Stock-to-Flow (S2F) model has become popular during the bull cycle in 2021. However, there is still a lot of criticism surrounding this hypothesis. Is this model really reliable?

PlanB’s Stock-to-Flow Model is confident Bitcoin will hit $100,000 by the end of 2021

Bitcoin analyst PlanB is highly respected in the crypto world and has amassed 1.5 million followers on his personal page since October 2017. Plan B is the father of the Stock-to-Flow model (S2F), thereby giving a simulation of Bitcoin price prediction. PlanB has done well on its stated goals over the past 3 months, but in November alone, things may have gone wrong. According to this model expect Bitcoin price to increase 10 times after each halving.

Specifically, at the end of June, PlanB indicated that in a worst-case scenario BTC would trade at $47,000 in August, then see a reversal in September with as low as $43,000. By October, the price will be more than 63,000 USD. November will reach 98,000 USD and by the end of 2021, BTC will exceed 135,000 USD.

However, reality shows that Bitcoin has not lived up to PlanB’s expectations.

Why is PlanB’s model unreliable?

The S2F model is based on quantifying the price of an asset by its scarcity and is mainly used for common metals such as gold and silver. So, PlanB has also taken advantage of Bitcoin’s limited supply of 21 million units to reflect that the price of BTC will continue to move up in a steady and impressive manner with approximately ten times returns after each repeated bull cycle after four years.

In effect, this model does not consider demand but only scarcity, and Bitcoin is no longer the only crypto-asset in circulation. Its dominance is waning as there are many emerging projects that are sure to draw attention (and investment) “away from this digital gold”.

In fact, it is the failure to consider the impact arising from demand that makes the stock flow model incomplete; a scarce asset has value if people want to buy it. A painting by an unknown artist, however beautiful and even part of a collection of several paintings, is of no value without the interest of someone who wants to own it.

The key problem with the S2F model that many critics have pointed out is the one-way estimate, S2F only takes into account the supply side of BTC while rejecting assumptions from macro factors, irregularities, unexpected occurrence in the market or reduced user demand.

And most recently on June 21, the founder of Ethereum Vitalik Buterin directly criticized the controversial Stock-to-Flow (S2F) model popularized by PlanB as harmful and it deserves criticism ridicule from the community.

Surprisingly, not long after that, PlanB responded to Vitalik Buterin’s criticisms with an equally harsh attitude when “indicating” Vitalik was just trying to justify his failure.

Do you think the Stock-to-Flow model of PlanB is really useful in analyzing the price of Bitcoin? Is Vitalik’s point of view accurate or not?

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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