The co-founder of the world’s second-largest blockchain Ethereum, Vitalik Buterin, strongly disapproves of the Stock-to-Flow (S2F) model that has drawn a lot of attention in the crypto space.
The S2F model was created by anonymous quant analyst PlanB, and it takes into account bitcoin’s scarcity after halving events to predict the asset’s price. The model indicates that bitcoin stands a good chance of hitting $1 million at some time in the future.
The latest iteration of the stock-to-flow model which was published by PlanB on April 27 removes the time variable and instead includes other assets (gold and silver). The analyst uses that data to plot a chart that forecasts $288,000 per BTC by 2024.
The Theory That Halvings Cause BTC Price Increases Is Unfalsifiable: Buterin
For those unaware, the stock-to-flow model suggests that the bitcoin price will increase after halving because of the supply shock in the bitcoin market. After halving, the rewards awarded to miners on the bitcoin network are slashed by 50 percent. Hypothetically, this reduces the number of new bitcoins produced on a daily basis.
PlanB maintains that the model has closely tracked bitcoin’s performance over the years and it also shows that the price of bitcoin has historically skyrocketed after each halving event.
However, Ethereum’s Vitalik Buterin is not sold on this model. In a tweet on June 14, Buterin explained why it is difficult to prove or disprove the stock-to-flow model.
He argued that the timing of the BTC peaks makes this theory “unfalsifiable”. Case in point, the pioneer cryptocurrency posted its present all-time high of almost $20,000 at a halfway point between the 2016 halving and the May 2020 halving.
Buterin further clarifies that he disagrees with S2F. But, he acknowledges that the fact that bitcoin price upswings are not coherently correlated to the block halvings is not enough to disprove the stock-to-flow model.
PlanB Responds To Buterin’s Criticism Of The S2F
PlanB took to Twitter to respond to Buterin’s disapproval of his S2F model. In particular, PlanB averred that halving makes bitcoin scarcer, and scarce commodities like gold and silver seem to have a higher value than non-scarce assets.
He also pointed out that the average price levels are more important because the bitcoin price peaks are primarily caused by greed and FOMO.
I beg to differ. Halvings make BTC scarcer (in S2F terms) and scarce assets (BTC, gold, silver etc) seem to have a higher value than non scarce assets. It is not so much about the peaks (those are caused by greed and fomo), but the average price levels.https://t.co/cQEv7Qvu64
— PlanB(@100trillionUSD) June 15, 2020
It’s worth noting that this is not the first time Vitalik Buterin is dismissing the S2F model. In February this year, he called the theory “post-hoc rationalized bullshit”. He is also not the only member of the crypto community who criticizes the model. For instance, other experts claim that S2F does not factor in bitcoin’s demand-side which is actually the most important driver of the BTC price.
At the moment, bitcoin is valued at around $9,200. The king crypto has recovered over 150% from the March madness but it has not really registered a monster bull rally yet. Only time will tell whether PlanB’s sky-high price targets become a reality or whether Buterin was right all along.
