In the past few years, Inventory-to-flow model Depend on Plan B Has become very famous. A quantitative study published on the planbtc.com website showed that Bitcoin (BitcoinThe market value of) may reach 100 trillion U.S. dollars. Obviously, the cryptocurrency industry, including myself, is fascinated by the logic of the model, and even the idea that it can reach and exceed $100,000 as early as 2021.

In fact, the inventory-to-flow model assumes that there is a relationship between the amount of precious metals mined each year (flow) and the amount that has been mined before (inventory).

For example, gold mined each year only accounts for less than 2% of circulating gold (held by central banks and individuals). At today’s mining speed, it will take more than 50 years to double the circulating stock, effectively making gold a scarce commodity.

PlanB assumes that Bitcoin, which is considered by many to be digital gold, may follow this relationship between circulation and the amount of mining that year, and proposes a Cartesian plane (X-axis and Y-axis are both logarithmic axes), in which Bitcoin’s growth The excess time follows an increase that can be described by the regression line (using the power law formula).

The rebound found every four years or so is due to the expected return of each mining block being halved or halved. The Bitcoin protocol stipulates that for every 210,000 blocks, the number of Bitcoins allocated to each block is halved to miners who have won the cryptographic test.

related: Predicting Bitcoin prices using quantitative models, part 2

Perhaps when Satoshi Nakamoto thought of the halving phenomenon, he had assumed that the price would double every four years. At the same time, PlanB has shown that in the first 10 years of history, Bitcoin moved around an exponential function, which means that for every halving, the price will rise ten times instead of twice.

Reason #1

The first reason is as follows: Can we really assume that the value of Bitcoin will reach $1 billion around 2039?

One billion per bitcoin means that the market value will reach approximately 20,000 trillion U.S. dollars, which is “only” 130 times the current value of the stock market. What’s more, in the next few years, according to this model, the value is destined to increase tenfold.

Obviously, this is incredible, especially for the next two points.

Reason #2

The second reason is that the model does not consider demand but only scarcity. Bitcoin is no longer the only crypto asset in circulation. As many emerging projects inevitably attract people’s attention (and investment) to digital gold, its dominance is waning.

In fact, it is precisely because the impact of demand is not considered that the inventory flow model is incomplete; if people want to buy, scarce assets are valuable. A painting by an unknown artist, even if it is beautiful, even if it belongs to a collection of several paintings, is worthless if there is no interest in someone who wants to own it.

A few months ago, I discussed this in my article, when I proposed a Bitcoin forecasting model based on demand rather than scarcity. According to this model, for Bitcoin to reach a value of 1 billion, it needs about 4 trillion wallets to circulate-which is very incredible in one scenario.

related: Predicting Bitcoin prices using quantitative models, part 3

Reason #3

The third reason comes from the stock-to-flow construction itself.

If we do not return from the beginning to today, but assume that we return at the end of each period before the halving, then Regression is always different.

If we calculate the inventory flow at the end of the first halving, it is predicted that the capitalization of global diamonds will be reached as early as September 2016. However, at the end of the second halving in August 2016, the regression line indicated that the capitalization of Bitcoin will reach the capitalization level of gold in 2021, and we are still one-tenth of it.

related: Predicting Bitcoin prices using quantitative models, part 4

Therefore, the path of Bitcoin in the Cartesian plane with dual logarithmic axes proposed by PlanB may not be regarded as a straight line, but a curve (the mathematical description is yet to be studied), which tends to be smooth over time, effectively The over-optimistic forecast of the stock-flow model proposed by PlanB is invalid.

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