Bitcoin trading above $55,000 has a common question that everyone is curious about. This question is whether bitcoin is too valuable to buy anymore. The answer depends primarily on the investment purpose, time horizon and risk tolerance of the person. On the other hand, it also depends on our understanding of Bitcoin.
Aside from Satoshi Nakamoto’s original white paper, PlanB’s work is very insightful. PlanB’s stock flow model gets a lot of attention these days, mostly because of the balanced absolute price declines. But if institutions step in, will the model look invalid?
PlanB and Bitcoin Stock Flow Model
It is now unclear who PlanB is as a true crypto identity. But he introduces himself as a Dutch institutional investor in his late 40s. According to him, his old job as an investor in traditional markets is now “Plan A”, while his interest in Bitcoin is “Plan B”.
PlanB mostly looks at how many new bitcoins are being minted, the current measure in circulation. It also examines what this means in terms of price. On the other hand, it is known for its Stock-to-Flow (S2F) model, which is a simple but deep model.
In March 2019, as Bitcoin struggled to break above $5,000, critics were reluctant to take the model seriously. PlanB’s assumption that Bitcoin will hit $55,000 in early 2021 turned out to be correct.
It seems unreasonable that a model should be so true when numerous factors influence the price. Skeptics argue that the model is simply a self-fulfilling prophecy. However, this is a weak argument that exaggerates the impact the model can have on millions of traders around the world.
PlanB mentioned in its statement that the accuracy of the model may have something to do with Bitcoin introducing a unique constant to the economy.
land, real estate, gold, diamonds; We say they are scarce creatures. But it’s easy to imagine scenarios where this kind of hunger loses its meaning. Scarcity can also be produced. For example, languages are circulating that diamonds are not as scarce as the industry would have us believe. In addition, diamond experts like to point out that “real diamonds” are different from man-made ones. Inevitably, we all know it’s just a brand.
Bitcoin, on the other hand, has a fixed maximum amount tied to the code. Miners cannot decide to mine more bitcoin if demand increases significantly. The mathematically challenging discipline in Bitcoin is strong and keeps the market on track.
100 Billion Dollar Thesis
Since developing the Stock Flow model, PlanB has published a modified, more comprehensive version (S2FX). The main difference is that in the first model “time” provides the framework for the analysis, while in the latest model it is only about “transitions”.
Just as water exists in different states, each with different properties (frozen, liquid, gas, etc.). For example, the nature of the US dollar changed when it broke out of gold. Here Bitcoin’s horizon changes with the transition.
PlanB has explained that Bitcoin has evolved over the years from proof of concept (white paper) to payment instrument (USD parity), to e-gold (after 1st halving, almost gold parity) and with Bitcoin has is global to where we are today, arguing that it has shifted to financial assets.
At all levels, Bitcoin can potentially absorb cash energy that may be held in expensive businesses such as gold, silver, bonds and real estate. According to PlanB’s claim, the price of Bitcoin will reach $288,000 in mid-2020-2024.
He also stated in an interview that the model is able to plan price discovery until Bitcoin’s market cap reaches $100 trillion, but there is nothing on what might happen next. All bets are off, so to speak.
Saylor’s Great Cycle
Michael Saylor, CEO of MicroStrategy, reads Bitcoin’s charts in a recent podcast on the assumption that crypto traders will behave as as they have done in the past. Basically, the asset is expected to rally to a new all-time high in the upper band of the long-term logarithmic trend a few months after the halving. It’s a long, cold crypto winter with a subsequent 80% drop.
The problem is that once you leave Earth orbit, everything we know about seasonality becomes priceless. Instead, we must learn how to traverse the cosmic seasons. Saylor argues that everything we know, all of our past experiences with Bitcoin, is meaningless now. Saylor says the world has changed forever since the March 2020 stock market crash and all models are out the window.
While Saylor’s point makes sense, PlanB’s stock-to-flow model remains in place even after Tesla’s $1.5 billion allocation to Bitcoin and MicroStrategy’s multiple attendance at the Bitcoin for Enterprise conference, which the movements we have seen fully explained so far.
PlanB, in a variant, welcomed Saylor’s point of view. In addition, it is necessary to see the relationship to one’s own model. As people begin to see the inevitability of Bitcoin, we can see people operating the stock flow model on the front. It’s actually an amazing cycle. In short, the Saylor Magnificent Cycle as some call it.
Bitcoin Standard Adoption
We live in a fast-moving world. We also focus on instant satisfaction and quick wins. The biggest misconception right now is to approach Bitcoin from the perspective of a quick wealth plan by aiming to sell the most. If instead we see a Saylor Superior Cycle in which ordinary people, retail and institutional investors, corporations and central banks cannot forsake low-value assets lest bitcoin get rich quick, but rather to regain wealth in general, then in such a case it would be selling the top more difficult and means settling for less.
It is reasonable for people to be skeptical about a “digital currency”. But nothing about cash makes sense. Instead of selling bitcoin on top, we should probably change our perspective and sell cash on top.
As a result, Bitcoin is truly volatile. But the case for an anti-inflationary institution is strong. So, as PlanB’s stock flow model suggests, the truth is on the way.