14 ms·
If you're wondering why your friends who are into cryptocurrency are in a tizzy, it's related to a model called "Stock-To-Flow" that attempts to post-facto expl
by andrewla 6y ago
If you're wondering why your friends who are into cryptocurrency are in a tizzy, it's related to a model called "Stock-To-Flow" that attempts to post-facto explain the price of Bitcoin (and other liquid assets, like gold) in terms of the rate of production.
Proposed by PlanB [1] it is a source of constant derision/hope/skepticism/dismissal by the Bitcoin community, and the halving of the reward gives it its first non-backtested novel prediction.
Roughly it predicts [2] that the price will settle into a band around 30,000 USD sometime next year.
[1] https://twitter.com/100trillionUSD https://twitter.com/100trillionUSD
[2] https://cointelegraph.com/news/bitcoin-halving-will-be-make-or-break-for-stock-to-flow-model-planb https://cointelegraph.com/news/bitcoin-halving-will-be-make-...
- artursapek 6y agoShameless plug: you can plot the price of BTC along with the "Stock-to-Flow" model in real time on Cryptowatch! https://share.cryptowat.ch/charts/bqsr58eein8u9uevh370-kraken-btcusd.png https://share.cryptowat.ch/charts/bqsr58eein8u9uevh370-krake... https://twitter.com/cryptowat_ch/status/1253335480256483330 https://twitter.com/cryptowat_ch/status/1253335480256483330
- simias 6y agoNot only is the width of that purple region absolutely ridiculous, it doesn't even manage to match the actual data. I'm not exactly convinced.
- artursapek 6y agoYou can configure it by # of std deviations, or remove it entirely. Thanks for meeting the stereotype of "asshole HN commentator" I appreciate your feedback
- dang 6y agoPlease don't be a jerk on HN. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- Traster 6y agoCan someone explain why their model is drawn on a logarithmic axis?
- liquidify 6y agoIf you didn't draw it in a log scale, you wouldn't see the patterns when they occurred in the lower levels since the size of the later movements would dominate the graph. Basically it is a way to show that there is similar movements in the value even when the ranges they move in are completely in different scales.
- Traster 6y agoBut doesn't this effectively just massively under-represent the actual deviation between the price and estimate and the error bounds. If you convert back in to real numbers this estimate is like saying APPL will be between $100 and $1000. I'd be interested to know if there are any other traded products that we view on a logarithmic scale.
- wmf 6y agoIf APPL is currently at $90, that prediction says you'll make somewhere between a lot and a ridiculous amount of money. It's not at all precise, but the action you should take if you believe the prediction is clear.
- jhrmnn 6y agoI assume because in its short history, the bitcoin price has spanned many orders of magnitude
- simias 6y agoGiven the ultra-speculative and very volatile nature of bitcoin so far, aren't these models effectively numerology? I really fail to see how you can reasonably tie bitcoin's rate of production with its price. After all the last halving was in July 9 2016. Since then the production has been reasonably constant while the price has been a complete rollercoaster. With logarithmic scales and big enough error bars you can fit anything into anything. >If you're wondering why your friends who are into cryptocurrency are in a tizzy Being into cryptocurrency is reason enough to be honest.
- cortesoft 6y agoI think the idea is that production has a real world cost (hardware, power, and space), and those costs determine the price (eventually)
- vertex-four 6y agoThat's literally backwards to how this works though. Just because you fire up a bunch of miners doesn't make Bitcoin's value jump - it's the opposite, Bitcoin's value jumping makes it cost-effective to run additional miners.
- nannal 6y agoFiring up additional mining would split the rewards between more people causing fewer rewards per participant. Miners engaged in mining before I arrived would have the same costs they had before, but now with fewer BTC to cover them, this would force them to sell at a higher price or operate at a loss until they drown the competition. There are two ways to look at it.
- Nursie 6y ago"Force them to sell at a higher price" ... so they decide the market? Nope. Miners have costs to cover, mining unprofitably and holding makes no sense whatsoever (you're literally better off turning off your rig, buying on the market and holding at that point)
- liquidify 6y agoI don't agree that this is the reason that people are in a "tizzy". To me this instance is an instance where a shock enters the system. Think of it like a differential equation where a steady state is changed... like a spring that has been held in a certain position is released. There will be a shock as the system seeks to find a new equilibrium. The fact that the system has been shocked means that there is some predictable craziness that will happen soon. It is basically guaranteed fun no matter how it turns out. I've been following bitcoin a long time, and was excited for the halving. But I'd never heard of the model you described and could care less about it.
- mraudiobook_com 6y agoAn intelligent comment about Bitcoin on HN? Prepare to be down voted to hell.
- mianos 6y agoIt would be more apt to say the spring is in a high viscosity fluid. It takes some time for the fluid to move away because there is some friction in the system. It's free to make small movements quite quickly but the longer ones are damped. But there is a spring in there with one end connected to something. In the case of BTC it's probably connected to a much larger mass in the fluid that can move itself, not held down like some fiats.
- pwm 6y agoI completely agree with you which is why i’m replying that you should read those 2 models (S2F and S2FX). Its anonymous author says the same thing as you but goes a step further trying to meaningfully quantify it. They are honest about the fact that this is just a model but nevertheless a very interesting one. If you like math i encourage you to have a proper look at it.
- amiga_500 6y ago30k usd? Let me tell my wife! https://m.youtube.com/watch?v=64R918K-3L8 https://m.youtube.com/watch?v=64R918K-3L8 With the extreme uncertainty globally, this model cannot be reliable.
- petercooper 6y agoIf there were any decent probability of Bitcoin being 3.5x higher in a year's time, why wouldn't it already be getting priced in?
- zhoujianfu 6y agoYou could argue it is priced in. Maybe there’s a 30% chance of it being 3.5x higher?
- throwphoton 6y agoI wonder how long people with large, leveraged positions are able to wait for that increase before they get nervous.
- jkhdigital 6y agoThey already got wiped out in early March when the price dropped 50% in one day. Trust me—I was there at 2am when BitMEX suffered a DOS attack right when the price bottomed and rebounded $1000 in less than an hour.
- hanniabu 6y agoYou could have said that in every bull run. You could also say that about the S&P, if it's going to be worth more later why isn't it instantly that price now? And it's because it simply isn't worth that now plus different investors have different investment periods.
- hlmencken 6y agoYou can't invest in the s&p like that. > Between January 1, 1963 and December 31, 2014, 1,186 index components were replaced by other components. You can know an index of 500 large companies will go up but not know what companies will be on that index in the future.
- jkhdigital 6y agoExactly, this is a fundamental fallacy of index investing—you can’t “buy the market” and any ETF that claims otherwise is a cleverly crafted leaky abstraction. The problem with leaky abstractions is that you usually have no idea that they leak until everything collapses...
- freepor 6y agoNobody knows what a barrel of oil will cost next year so any claims about the future price of Bitcoin come from someone who is trying to scam you.
- somebodythere 6y agoThe cryptocurrency markets are a lot less efficient than the traditional financial markets.
- 9nGQluzmnq3M 6y agoActually, we know exactly what a barrel of oil for delivery in May 2021 will cost ($33 at time of writing), and you can go buy some right now: https://www.wsj.com/market-data/quotes/futures/CLK21 https://www.wsj.com/market-data/quotes/futures/CLK21
- abiogenesis 6y agoThe point is, you can buy some right now but you don't know if you will be able to buy at the same price next year in May.
- jMyles 6y ago> If you're wondering why your friends who are into cryptocurrency are in a tizzy I'm not wondering that, because none of my friends are in a tizzy. Are your friends in a tizzy? Am I just outside the social connections to the tizzy club?
- pjc50 6y agoAnother key factor which these models often ignore is the rate of "Tether" printing, which is often used to buy bitcoin and is not subject to limits. My own prediction is to observe that the price has been in a wide band around $10k for the past year, so will continue to hover around that, with gradual upslopes and sudden dropoffs of 5-30% for no apparent reason that cannot easily be post-hoc linked to events.
- hanniabu 6y agoTether didn't always exist
- ac29 6y ago> Roughly it predicts [2] that the price will settle into a band around 30,000 USD sometime next year. No, it predicts it will be at $30k at the end of this year, and $100k this time next year [0]. I'm pretty comfortable saying that no, it wont. If I though there was a reasonable, legitimate way to trade against that outcome occuring, I absolutely would. For reference, in the past year, BTC has increased in price by ~$1450 or 20% - getting to $100k would be over 1000% increase. [0] https://digitalik.net/btc/ https://digitalik.net/btc/
- radium3d 6y agoAccording to my theory based on BTC history the next peak will be $225038 or a 1020% increase over the previous peak. That's kind of conservative. My last estimate for the next peak was only $8903 but it hit $20089 or 1681% increase over the previous peak. I don't own any BTC but I just did this little sheet for fun lol :) also I don't try to predict when this happens, just a very rough estimate of the next peak level based on its previous history. https://docs.google.com/spreadsheets/d/1qgqvFR6HeVNkw2fxLgdrnSMxKuHojVkiQBKQeSFj34o/edit#gid=338445762 https://docs.google.com/spreadsheets/d/1qgqvFR6HeVNkw2fxLgdr...
- odonnellryan 6y agoHave you tried to do this same analysis on other commodities, securities, etc?
- radium3d 6y agoNope have not. When I started this sheet back in the day I considered it a new modern currency actually, it was before the government started taxing it as if it were a stock, etc. It really is nothing like any existing stock, security and should not be compared to those. I usually just go long on stocks, securities.
- odonnellryan 6y agoI suppose my instinct is to think just because you were right once or twice about BTC using this model doesn't mean you'll be right about it going forward. What intrinsically about this model should give me confidence in it?
- Alex3917 6y ago1) Lots of people are coming to kill me, but it's ok because I have a large private security force to keep me safe. 2) I'm forced to cut my security budget in half. 3) ?????? 4) I'm now twice as secure.
- ColanR 6y ago> the halving of the reward gives it its first non-backtested novel prediction You have my curiosity. What is the prediction that Stock-To-Flow made about the effect of the halving?
- wmf 6y agoThat the price will go to $100K (+/- a lot) within a year. Look at the graphs.
- nateberkopec 6y agoTo believe this is true, you must also believe that efficient markets do not really exist. Imagine if a publicly traded company announced that in 1 years time, they would buy back half of their outstanding shares (not a great analogy but its the best I can think of). What would happen to the stock price? All securities prices in publicly traded markets are essentially priced as discounted cash flows over the next 20-30 years. The current price reflects all available public information about those cash flows. I'm not saying efficient markets is 100% true all of the time, of course the world demonstrates that it isn't, but the level of disbelief you have to have in the hypothesis to believe that a well-known public event affecting Bitcoin will result in a 3x price increase is lunacy, IMO.
- mudlus 6y agoLook at the stock market right now, does that seem efficient? Sometimes volatility is necessary. "Imagine if a publicly traded company announced that in 1 years time, they would buy back half of their outstanding shares (not a great analogy but its the best I can think of). What would happen to the stock price?" The irony is that a bunch of companies are and did do EXACTLY this with trillions of dollars designed to bail out the economy.
- alextheparrot 6y ago> All securities prices in publicly traded markets are essentially priced as discounted cash flows over the next 20-30 years Orthogonal, but I do enjoy how every time I see a statement like this, it comes with a different year set of years. This one is 20-30 years, saw one yesterday at 50 years, Investopedia will tell you 5-10 years is the standard [1]. [1] https://www.investopedia.com/investing/pitfalls-of-discounted-cash-flow-analysis/ https://www.investopedia.com/investing/pitfalls-of-discounte...
- nateberkopec 6y agoYeah I just picked a number out of thin air. I suppose it depends on your discount rate + some arbitrary threshold of when you want to say the asset has returned most of it's useful cash flow. For example, a cash flow with a 10% discount rate will return about 90% of all it's discounted future cash flow by year 20. The discount rate depends on the investor, and as for when you stop counting cash flow on the way to infinity, I guess that's up to you.