With Bitcoin trading above $55,000 USD, a common question is whether Bitcoin is now too expensive to buy. While the answer primarily depends on one’s investment goal, time horizon, risk appetite and so forth, it really also depends on our understanding of Bitcoin.
Apart from the original Whitepaper by Satoshi Nakamoto, the work by PlanB can be instructive. PlanB’s Stock-To-Flow Model has been getting a lot of attention these days, mostly due to the consistent precision of its price projections, but with institutions moving in, could we be on the verge of breaking through the model?
PlanB & The Stock-To-Flow Model
In true crypto fashion, it is not yet clear who PlanB is exactly, but he introduces himself as a Dutch institutional investor in his late 40s. In his narrative, his now former daytime job as an investor in traditional markets is ‘Plan A’, while his interest in Bitcoin represents ‘Plan B’.
PlanB is best known for his Stock-to-Flow model (S2F), a simple but profound model that looks at how much new Bitcoin is minted, the available amount in circulation and what this means in terms of price.
In March 2019, as Bitcoin struggled to climb above $5,000 USD, critics found it difficult to take the model seriously, but two years later it turns out that PlanB’s prediction that Bitcoin would reach $55,000 USD by early 2021 had been spot on.
It seems counterintuitive for a model to be so accurate when there are a myriad of factors that can impact price. Skeptics might argue the model is simply a self-fulfilling prophecy, but this is a weak argument that overestimates the influence the model might have on millions of traders around the world.
In his own explanation, PlanB has mentioned that the model’s accuracy might have something to do with the fact that Bitcoin uniquely introduces a constant into economics.
Land, real estate, gold, diamonds; we might say these are scarce assets, but it’s easy to imagine scenarios where such scarcity loses meaning. Equally, scarcity can be manufactured. It is well-known, for example, that diamonds are not as scarce as the industry would have us believe, and while diamond connoisseurs are keen to point out that ‘real diamonds’ differ from artificially created ones, we all know that’s just branding.
Bitcoin, on the other hand, has a fixed maximum supply, hardwired into code. If demand were to rise significantly, miners cannot simply decide to mine more Bitcoin. This mathematically enforced discipline baked into Bitcoin is powerful and keeps the market on track.
The 100 Trillion Dollar Thesis
Since developing the Stock-to-Flow model, PlanB has released a modified more extensive version (S2FX). The main difference is that in the first model, ‘time’ provides the framework for analysis while in the latest model it’s all about ‘transitions’.
Just as water comes in various forms that each exhibit different characteristics (frozen, liquid, gaseous etc), and just as the US dollar changed in nature when, say, it was decoupled from gold, so Bitcoin’s horizon changes as it transitions.
Over the years, PlanB argues, Bitcoin has shifted from proof of concept (Whitepaper), to payment vehicle (USD parity), to E-gold (after 1st Halvening, almost gold parity), to where we are today, with Bitcoin constituting a global financial asset.
In each phase, Bitcoin is capable of higher orders of disruption – potentially able to absorb the monetary energy currently held in stores of value such as gold, silver, bonds and real estate. In PlanB’s estimation, the price of Bitcoin is set to reach a valuation of $288,000 USD in the period between 2020-2024.
In an interview, he furthermore states that while the model can plot price discovery until Bitcoin’s market cap reaches $100 trillion USD, there is no telling what might happen after that. All bets are off, so to speak.
The Saylor Super-Cycle
In a recent podcast, MicroStrategy’s CEO, Michael Saylor, said that crypto traders are at risk of reading Bitcoin’s charts with the presumption it will behave as it has done in the past. Basically, a few months after the Halvening, the asset is expected to skyrocket to a new all-time high at the upper band of the long-term trend on the logarithmic, and then we will see an 80% drop, leading to a long, cold crypto winter.
The point is, once you’re out of the earth’s orbit, everything we know in terms of seasonality loses value and we have to learn how to navigate cosmic seasons instead. Everything we know, all our previous experiences with Bitcoin, Saylor argues, are meaningless now. Since the stock market crash in March 2020, the world has changed forever, Saylor says, and all models are out the window.
However, while Saylor’s perspective makes sense, PlanB’s Stock-To-Flow model still completely accounts for any movements we’ve seen so far – even after Tesla’s $1.5 billion allocation to Bitcoin and MicroStrategy’s over-attended Bitcoin for Corporations conference.
Interestingly, PlanB welcomed Saylor’s perspective and sees the link with his model, saying that there is a possibility that as people start to realize the inevitability of Bitcoin, we could see people front running the Stock-To-Flow model, en masse, kicking off a super cycle – or, as some might call it, the Saylor Super-Cycle.
Adoption of The Bitcoin Standard
We live in a fast-paced world, focused on instant gratification and quick gains. The biggest mistake now, might be to approach Bitcoin in terms of a get-rich-quick scheme, with the goal of selling the top. Instead, if we are to see a Saylor Super Cycle where everyday people, retail and institutional investors, corporations and central banks cannot but ditch inferior assets for Bitcoin, not to get rich quick, but to redenominate wealth in general, in such a case, selling the top means settling for less.
It makes sense for people to be skeptical about a ‘digital currency’, but nothing about cash makes any sense, and instead of looking to sell Bitcoin’s top, perhaps we ought to change our perspective and sell cash at the top (too late now).
Bitcoin is indeed volatile, but the case for an anti-inflationary asset is strong, and as evinced by PlanB’s Stock-To-Flow, it’s on the right track.
About the Author
Ben Caselin is head of research and strategy at AAX, the first cryptocurrency exchange to be powered by London Stock Exchange Group’s LSEG Technology