RT @100trillionUSD: My first Medium article! Combining all my tweets about modeling bitcoin's value with stock-to-flow, the halving, power laws, fractals and questions & answers to one logical story.
I like the model, as it nicely explains the past from a simple principle. I also think it has merit to explain the next cycle or two. But what I don't like about it is that it keeps predicting ~10x price in each and every price cycle. Exponential growth without any saturation mechanism or slowdown appears unrealistic.
There is a difference between exponential growth of SF (which is true by the workings of bitcoin) and the power law mentioned I the article as price = 0.4 * SF ^ 3 (which is only predicted / modeled)
They do not necessarily contradict each other
Why is that? Bitcoin halfing events happen at regular intervals, and since the supply is going up so slowly, the S/F ratio should increase an approximately constant amount each halfing. In fact, since percentage rate of stock expansion is decreasing, the increase in S/F ratio is always going slower, especially during halfing events.
That's my assessment as well. That isn't the same thing as saying "the S/F ratio will increase exponentially with time".
If S/F doubles at constant intervals, that means is that the S/F ratio will decrease *linearly* with time, not exponentially.
Making something hard to obtain doesn't make it valuable. Neither is work volume a measure of value. Value is subjective and ideological. You must asses the object as good, productive, or useful in order to give it a positive value. And unless that object is the sole source of a particular human need, then its value is subjective. Even then, a person's own estimation of the value of their own life is essential to determining the value of an object required to continue that life. As a trader who is looking to assign value to their objects, the best you can do is look for market prices of comparable objects. In the area of new technology, where no comparison is available, you have a very complicated, actually impossible calculation. You need to predict future desirability, future utility, and future competition. That's why, until Bitcoin's place in the future financial system is established, its price discovery is going to be a challenge. I think you have to start there; at where you believe Bitcoin will fit in the future of financial tools, which involves also predicting the effectiveness of Bitcoin's competition within this crypto market.
I think the model is not about scarcity -> price, but rather change in scarcity -> change in price. The idea is that, given a starting point value, you can approximately predict what price it will be at a given S/F ratio by multiplying the predicted rate of change in price by the known current price.
Right, It doesn't automatically make it valuable but it is a very rare property of a digital product. Also hard to obtain works with scarcity and is one of the many critically important properties of a money.
True. It would be interesting to see if the stock-to-flow ratio holds up with shitcoins over time. It's great that financial markets can allow us to test these hypothesis. R-squared of 95% for Bitcoin should give HODLers faith and a deviation after the next halving would provide us with a useful signal that our hypothesis may be incorrect.