Vitalik Buterin Disagrees With Bitcoin Stock-To-Flow Prediction Model
That Bitcoin “halving”–a pre-programmed on-chain event, affects prices is unfalsifiable. However, the Stock-to-Flow price (S2F) prediction model centered on this event draws more questions than answers because of its inconsistencies. This is the assessment of Vitalik Buterin, the co-founder of Ethereum, who on June 14, 2020, posted his view on Twitter.
What is the Stock-to-Flow (S2F) Model?
The S2F model is advanced by a pseudonymous Dutch analyst, PlanB, and was first published back in March 2019.
PlanB describes Bitcoin as an invention of digital scarcity based on a Peer-to-Peer (P2P) network, encryption, and a Proof-of-Work consensus algorithm. His model measures scarcity and is a hypothesis that proves digital assets have value.
By predicting the price of Bitcoin by factoring in scarcity, the model continues to draw discourse with supporters and critics clashing from time to time.
Since the model is primarily based on scarcity which is heavily influenced by halving, Vitalik agrees that the price of Bitcoin tends to “pump” ahead of these periodic events. He says that the theory to support this view is “unfalsifiable.”
Vitalik Disagrees with the S2F Model
Nonetheless, he disagrees with S2F citing the absence of a coherent correlation between price spikes and Bitcoin’s halving events. In his view, the price of Bitcoin won’t necessarily rise—as predicted, simply because of miner rewards halving.
The "halvings cause BTC price rises" theory is unfalsifiable:
Was the peak before the halving? Then it "rose in anticipation of the halving"
During? "Because of the halving"
After? "Because of…"The last $20k peak was near the halfway point between the 2016 and 2020 halvings. pic.twitter.com/dhVxhmECQS
— vitalik.eth (@VitalikButerin) June 14, 2020
When Bitcoin halved in 2016, the BTC price shot to around $20,000 in late 2017 only to tank in subsequent sessions. The same was observed in the first halving event of 2012 when prices soared by a massive 7,000 percent. On May 11, 2020, the network halved its rewards for the third time from 12.5 to 6.25 BTC.
Based on the S2F model, the price of Bitcoin should exponentially rise since its scarcity would increase assuming constant or higher demand. A big weakness is that the S2F model doesn’t consider demand thereby failing to satisfy critics’ assertion that Bitcoin is a “demand-side story.” Already Bitcoin’s supply is known and fixed.
Bitcoin is a demand-side story.
Supply is fully deterministic.
There are no supply-side shocks.
Fixed total supply and diminishing supply growth are crucial because these drive demand.
It is that simple.
Demand is what matters most.
— Alex Krüger (@krugermacro) November 6, 2019
At the time of press, the Bitcoin price continues to oscillate below $10,000.
Amid the debate, earlier this month, Vitalik stated that the most pressing concern at the moment is not fixing the world’s economy. Instead, the crypto community should look beyond finance.
