A review of “Modelling Bitcoin’s value with scarcity”

One more post on the stock-to-flow model since I think it’s a big deal, and then I’ll leave it alone until we have more data after the next block reward halving.

Here we have a pair of articles by Marcel Burger, another quant, that reviews PlanB’s stock-to-flow model, as featured two posts ago. Part I of his review points out the flaws in PlanB’s model, and concludes that the model must be rejected due to autocorrelation in error terms. Part II, however, confirms cointegration(!) (as highlighted in my previous post) between the model’s variables, log stock-to-flow and log BTC price. Even more awesome, it just so happens that cointegration negates the specific flaw he found in Part I of his review, and in turn validates the stock-to-flow model!

Conclusion

The estimated relation between lnBTCprice and lnS2F is consistent (even though the OLS assumptions are not met) as we have shown that the time series are cointegrated. My former conclusion is thereby falsified. As cointegration applies we are able to use the coefficients coming from the OLS to quantify a model that describes the relation between the two series.

Powerful stuff! And remember, the S2F model predicts a bitcoin price of $55,000 after the halving coming in May 2020.

Part I:

Challenging Plan B: a review of “Modelling Bitcoin’s value with scarcity”

Bitcoin Signed Message: Challenging Plan B: a review of “Modelling Bitcoin’s value with scarcity” Signature: IBRzQ8TZJ4WRSroEJ/IvlKnyFlIB88P5jiNqQTnK1QowC6yqZG9VUpUkSyjMQhlBJOBC13NqHVDvc4i0Ad7y5ug= Recently Plan B, an early Dutch bitcoin adopter who anonymously shares his insights via Twitter, came out with an article [1] that dives into the relation between bitcoin’s price (and market cap) and the stock-to-flow ratio.

Part II:

Reviewing “Modelling Bitcoin’s Value with Scarcity” -Part II: The hunt for cointegration

Bitcoin Signed Message: Reviewing “Modelling Bitcoin’s Value with Scarcity” – Part II: The hunt for cointegration Signature: H+evhpmr/HrUTo5tHKwdtnkt09OIEKb3omE+mWxdI0j2N+6q5qXr9+XURAbSfaLQ/BeJjK1alPZzs6NrATb4jus= In my first review of the work of PlanB, I concluded that the relation between stock-to-flow and bitcoin price as pointed out by the author was invalid because the general assumptions of ordinary least squares regression were not met.