It started with a fair level of success, but PlanB’s stock-to-flow model failed. In fact, it has been the subject of ridicule by industry giants like Vitalik Buterin. Buterin of Ethereum today issued a statement revealing its thoughts on financial models such as the equity-to-flow model.
Buterin recently Tweet The stock-to-flow model doesn’t look good. This is related to the fact that the predictions are completely off. He is the latest critic of the model, but once defended as the Holy Grail of Bitcoin trading.
“I think it’s rude to exaggerate, but I think the financial model that gives people the false beliefs and appointments of increasing numbers is harmful and deserves all the ridicule they get.”
What is a stock-to-flow model?
Bitcoin’s infamous stock-to-flow model was introduced in March 2019 by Dutch institutional investors under the pseudonym of Plan B. The financial model uses the ratio of stock to flow to predict the value of Bitcoin. The latter is calculated by dividing the existing stockpile of Bitcoin by the amount of BTC minted each year.
The Bitcoin stock-to-flow model seeks to quantify the rarity of Bitcoin by comparing it to its price. With the expected accuracy, it quickly became one of Bitcoin’s most popular financial models. For example, the model accurately predicted that Bitcoin would be worth $ 47,000 in August 2021, $ 43,000 in September 2021, and $ 61,000 in October 2021.
Fortune cookie crumbled
PlanB’s stock-to-flow model proved ultimately wrong when the crypto market collapsed sharply at the end of 2021. Bitcoin prices peaked at $ 69,000 and ended in a year below $ 50,000.
This was contrary to the model’s prediction that Bitcoin would be worth more than $ 100,000 by the end of the year.
The failure of the Bitcoin stock-to-flow model highlights the risks of waiting for investors to over-reliance on financial forecasts. Such predictions have encouraged people to take too many risks in the past. The risk of losing a lot of money to them.