With Bitcoin's Crash, is the Stock-to-Flow Model Broken?

Hope @100trillionUSD doesn't ban me (again) for this one

Stock-to-Flow model (S2F) says bitcoin's price should be approximately $80,000 today. Its "better" version, S2Fx, says bitcoin's price should be even higher.

Yet, bitcoin's price is below $40,000 as of this post.

Is the model broken?

Variation is the norm

Good people can disagree about whether S2F or S2Fx are valid. That’s above my pay grade.

Whether they’re valid or not, they certainly allow for a lot of deviations. Bitcoin’s price goes way above and way below predicted prices all the time.

Over its entire history, bitcoin's price has gone more than 400% higher and 70% lower than the S2F models for months at a time. Look at the Stock-to-Flow Deflection chart from Glassnode, which displays all the deviations of bitcoin's price from the S2F models.

When the sguiggly line is near 1, bitcoin's price is near S2F's predicted price. You don't see a lot of that over bitcoin's history.

If you believed in S2F or S2Fx before this recent crash, you can still believe in it. If you didn't believe in it, nothing about the projections should change your mind. 

Does it matter anyway?

S2F and S2Fx remain popular and controversial models for bitcoin's price, but are they any better or worse than any other models?

Bitcoin's price has dipped outside of the logarithmic growth curves several times. Expanding and four-year cycles show wildly different price patterns from one cycle to another. Even halving patterns don’t mesh from one to another when you only look at price patterns.

Perhaps the models serve to prove only one point: bitcoin's price tends to go up over time.

As a result, you can believe any model that predicts bitcoin’s price will go up over time. 

And you'll be right.


Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio.

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