The often-quoted stock-to-flow model that Bitcoin is supposed to use to assign a theoretical value based on the hard-coded digital scarcity of the asset may not be mathematically based, according to Eric Wall, CIO of Arcane Assets.
Wall not only claims that the S2F model is flawed, but has also offered an alternative called the Reddit Rainbow Chart, which may be a far better model for predicting Bitcoin’s price history.
CIO claims for arcane assets The stock-to-flow model is incorrect and the math is invalid
With bitcoin halving in less than a month, hope that the event will produce bullish results has almost completely vanished from the cryptocurrency market due to the corona virus’ impact on the economy, stock market, and almost everything else it touches.
When the outbreak of the pandemic got out of control, a mass sale occurred, leading to a record-breaking decline in Bitcoin and other cryptocurrencies.
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The collapse broke a seven-year trend line, depressed the logarithmic growth curve and shattered almost every conceivable valuation model. The stock-to-flow model, which predicts a $ 55,000 bitcoin in May 2020 – less than 30 days away – seemed rather unrealistic.
The model’s creator, PlanB, based it on statistics from BTConometrics.com. However, the math behind the statistics has been abandoned by the author and is considered invalid.
The author’s new pricing model will bring Bitcoin close to $ 30,000 in 2021, which is lower than the original estimate of $ 80,000 for SF2.
The CIO of Arcane Assets, Eric Wall, too Expectations that the S2F values fluctuate often.
Enter the Bitcoin Reddit Rainbow Chart after the price action since 2014
Instead, Wall offers an alternative model to replace the S2F model that is so often cited in the entire crypto space. In his opinion, the replacement should be Reddit’s Bitcoin “Rainbow Chart”.
The diagram dates from 2014 and makes the creator of the diagram – Reddit users / u / azop – a “real OG” in the Bitcoin community. azop has since published the chart in the subreddit / r / BitcoinMarkets and updated the chart from time to time, just to help the Bitcoin community without receiving a payment or incentive to keep the chart active.
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According to Wall, the rainbow chart is “simple” and uses the “simplest approach” to seemingly track Bitcoin’s price history throughout its history.
Often less is more, and the Reddit Rainbow chart has so far held up to recent price movements and was even among the models and chart types that the recent breakdown could fit below $ 4,000 without breaking it.
The next time you see the stock-to-flow model and wonder why the Bitcoin price doesn’t keep its scarcity-based ratings, it may be time to look over the rainbow somewhere.
Featured image from Pixabay