- The inventor of Ethereum, Vitalik Buterin has criticized the stock-to-flow model for predicting the price of Bitcoin. Blockstream’s CEO, Adam Back responded to him and argued against his opinion.
- PlanB, inventor of the model has defended its mathematical approach with the transparency of the model.
The stock-to-flow model was presented as an alternative to predict the price of Bitcoin. Since its creation by the analyst Plan B, the model has been subject to harsh criticism. The co-creator of Ethereum, Vitalik Buterin, joined the critics of the model. In fact, Buterin referred 95% of the models and articles that attempt to predict the price of Bitcoin as “rationalized post-hoc bullshit.
The model is based on measuring the ratio between the scarcity of an asset and its current supply together with the level of production. It is a statistic that shows how many years it takes for production to reach stock. When analysing this data, it is concluded that there is a direct relationship between this figure and the price of an asset. It further suggests that Bitcoin Halving will have a bullish effect on the number one cryptocurrency by market capitalization.
Ethereum vs. Bitcoin: Differences in stock
Buterin’s statements initiated a discussion of the validity of the stock-to-flow model. Although the co-creator of Ethereum did not offer persuasive arguments. His criticism seems to be directed at any article that tries to predict the price of BTC. In the past, Buterin has also criticized Bitcoin’s halving claiming that the reduction in mining rewards represents a safety flaw. According to Buterin, miners could lose the incentive to stay in the Bitcoin network.
On the other hand, Blockstream’s CEO is one of the model’s most prominent advocates. In his response to Buterin, Back states:
It’s just a back tested curve fit to historic data, affirmed by co-integration stats test. What’s not to believe? More interesting is interpreting why, given good fit. It does seem logical that rate of supply halving, other things being equal, would tend to drive up price.
In addition, Back said Buterin’s position is based on the differences between Bitcoin’ stock and Ethereum’s. According to Back, Ethereum does not have a defined stock and, therefore, cannot have a stock to flow. Blockstream’s CEO stated that the supply of the Ethereum is adjusted to “the whims of a few programmers”. His opinion is consistent with the statements of the model’s creator, analyst Plan B. In a separate tweet, he said:
You can call stock-to-flow model rationalized bulls**t or absolute nonsense but that’s not how math/stats works: the proven cointegration is still there, everybody can verify it, until you prove it wrong. But I get Vitalik: liking S2F = saying ETH has no value, ofc he is a critic.
The criticism on the stock to flow model has been better argued by the Alef Bit Technologies group and the cold wallet manufacturing company, Trezor. Alef Bit has claimed that the model is inaccurate because it measures physical asset properties in digital assets. Trezor’ economic advisor, Dominik Stroukal, based his claims on the impossibility of making a prediction on the BTC price just by studying its stock. Stroukal further claimed that the price of an asset is determined by both supply and demand.
Blockstream’s CEO also responded to this assessment and stated the following:
(…) price depends on supply and demand” yes, and what do you think happens if demand is constant and supply halves? That’s the point!
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