in Crypto News
The Stock to Flow (S2F) price prediction model was hugely popular during the recent bull run. However, it has inevitably come in for heavy criticism in recent days with prominent personalities in the crypto space throwing shade at the model itself and the crypto thought leaders who entertained it.
S2F modeling was first used with commodities like gold. The model is essentially a calculation of a ratio that sets the existing supply of an asset against the amount of that asset that is entering circulation.
The price prediction model was adapted and popularized relative to Bitcoin by pseudonymous Dutch institutional investor, PlanB. In 2019 PlanB wrote a blog post on Medium setting out the basis for his Bitcoin S2F model.
Plan B then projected that Bitcoin would be worth more than $100,000 by December 2021 and $288,000 by 2024. It didn’t make that initial price target and has since decoupled entirely from the Bitcoin spot price. The notion of such a high price target appealed to the cognitive bias of many Bitcoiners and that’s most likely why PlanB has amassed 1.8 million followers on Twitter.
Vitalik speaks out
Earlier today, Ethereum co-founder Vitalik Buterin had his say: “Stock-to-flow is really not looking good now. I know it is impolite to gloat and all that, but I think financial models that give people a false sense of certainty and predestination that number-will-go-up are harmful and deserve all the mockery they get”.
In a follow-up tweet, Buterin suggests that people should remember who supported S2F and who mocked it when it still seemed like it was accurately describing the trendline. PlanB responded by claiming that people are “looking for scapegoats”. “Remember those who blame others and those who stand strong after a crash”, he stated.
One of its most ardent critics has been Arcane Assets CIO, Eric Wall - an outspoken antagonist in the crypto space. In 2020, Wall published “A list of the greatest blows to the S2F model”. He later took to parodying S2F by creating his own ‘stock-to-flow rainbow chart’. Among Wall’s criticisms was the claim that PlanB “changes S2F parameters more often than his underwear”.
Hilarity followed when a Tiktoker published a video clip providing investment advice based on Wall’s rainbow chart.
All models are wrong but some are useful
Another harsh critic of S2F has been crypto trader and economist Alex Krüger. In 2020, Krüger stated: “An increasing stock to flow ratio leads to lower volatility. That is all it does.”
Both Wall and Krüger were back on the topic today. They took it further than the more humble Vitalik by actively naming and shaming past supporters of S2F. Both of them criticized economist Saifedean Ammous with Kruger claiming that he “should be an embarrassment to academia”. Kruger added that people who were honest about how difficult it is to predict price were not very popular whereas PlanB has millions of followers.
Wall has since labeled his Twitter account ‘Plan E’ - accompanied by a rainbow graphic, saying that he was disappointed with podcaster Preston Pysh, Custodia Bank CEO Caitlin Long and macro analyst Raoul Pal for having given legitimacy to PlanB and S2F.
Speaking on a number of podcasts on the subject over the past few years, PlanB would often quote British statistician George Box: “All models are wrong but some models are useful”. It seems that at best S2F is a nice piece of hopium, and the most prudent advice might be for retail investors not to put too much credence into any one thing, and to be prepared to alter their perspective along with changing market conditions.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.