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Saturday, August 13, 2022

PlanB Makes Unreliable Stock-To-Flow Model For 3 Reasons

PlanB recently proposed a stock-to-flow model that has grabbed attention. However, their prediction seems inaccurate regarding a 10-time increase in Bitcoin price following each halving. 

PlanB Prediction Does Not Go To Plan

Reason 1 

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The first and foremost reason for this unreliable move by PlanB is the bleak possibility of Bitcoin attaining $1 billion per BTC by the year 2039. 

If Bitcoin reaches 1 billion each coin then the entire capitalization can be estimated to be almost $20,000 trillion. This valuation is “only” one hundred and thirty times more than the present value in the stock markets. It must also be noted that in the coming years, this stock-to-flow model by PlanB is likely to increase ten times. 

As a result, this model is impossible to achieve.

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Reason 2 

The next reason for the unreliability of PlanB’s model is the overdependence on scarcity rather than demand. Additionally, Bitcoin has lost its monopoly status as the sole crypto asset that is available in the market now. 

The dominance of Bitcoin is decreasing because of several emerging cryptocurrencies and digital investment projects that are grabbing attention. 

Moreover, the inability to contemplate the impact of demand on the stock makes the stock-to-flow model incomplete and a total failure. A rare item will gain value only if there is demand, whereas, a famous painting will be irrelevant if people show no interest in buying it.

Reason 3 

Instead of regressing, the construction of PlanB’s model, the halving could be done in a different way. In case the stock-to-flow was calculated towards the conclusion of the 1st halving, these predictions must have reached the diamond capitalization of 2016. Nonetheless, the 2nd halving in 2016, showed Bitcoin would reach gold’s capitalization in 2021. 

This Cartesian path of Bitcoin predicted by PlanB will certainly nullify the optimistic proposal.

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