This article originally appeared in Bitcoinist.
With Bitcoin trading above $55,000 USD, a common question is whether Bitcoin is now too expensive to buy. While the answer primarily depends on one’s investment goal, time horizon, risk appetite and so forth, it really also depends on our understanding of Bitcoin.
Apart from the original Whitepaper by Satoshi Nakamoto, the work by PlanB can be instructive. PlanB’s Stock-To-Flow Model has been getting a lot of attention these days, mostly due to the consistent precision of its price projections, but with institutions moving in, could we be on the verge of breaking through the model?
PLANB & THE STOCK-TO-FLOW MODEL
PlanB is best known for his Stock-to-Flow model (S2F), a simple but profound model that looks at how much new Bitcoin is minted, the available amount in circulation and what this means in terms of price.
In March 2019, as Bitcoin struggled to climb above $5,000 USD, critics found it difficult to take the model seriously, but two years later it turns out that PlanB’s prediction that Bitcoin would reach $55,000 USD by early 2021 had been spot on.
In his own explanation, PlanB has mentioned that the model’s accuracy might have something to do with the fact that Bitcoin uniquely introduces a constant into economics.
Bitcoin, on the other hand, has a fixed maximum supply, hardwired into code. If demand were to rise significantly, miners cannot simply decide to mine more Bitcoin. This mathematically enforced discipline baked into Bitcoin is powerful and keeps the market on track.
THE 100 TRILLION DOLLAR THESIS
Just as water comes in various forms that each exhibit different characteristics (frozen, liquid, gaseous etc), and just as the US dollar changed in nature when, say, it was decoupled from gold, so Bitcoin’s horizon changes as it transitions.
In each phase, Bitcoin is capable of higher orders of disruption – potentially able to absorb the monetary energy currently held in stores of value such as gold, silver, bonds and real estate. In PlanB’s estimation, the price of Bitcoin is set to reach a valuation of $288,000 USD in the period between 2020-2024.
In an interview, he furthermore states that while the model can plot price discovery until Bitcoin’s market cap reaches $100 trillion USD, there is no telling what might happen after that. All bets are off, so to speak.
THE SAYLOR SUPER-CYCLE
The point is, once you’re out of the earth’s orbit, everything we know in terms of seasonality loses value and we have to learn how to navigate cosmic seasons instead. Everything we know, all our previous experiences with Bitcoin, Saylor argues, are meaningless now. Since the stock market crash in March 2020, the world has changed forever, Saylor says, and all models are out the window.
Interestingly, PlanB welcomed Saylor’s perspective and sees the link with his model, saying that there is a possibility that as people start to realize the inevitability of Bitcoin, we could see people front running the Stock-To-Flow model, en masse, kicking off a super cycle – or, as some might call it, the Saylor Super-Cycle.
ADOPTION OF THE BITCOIN STANDARD
It makes sense for people to be skeptical about a ‘digital currency’, but nothing about cash makes any sense, and instead of looking to sell Bitcoin’s top, perhaps we ought to change our perspective and sell cash at the top (too late now).
About the Author
Ben Caselin is head of research and strategy at AAX, the first cryptocurrency exchange to be powered by London Stock Exchange Group’s LSEG Technology