It is hard not to notice that since November 1400 PlanB’s predictions for popular bitcoin price models are no longer performed. Author Bitcoin Magazine under the nickname Level14 believes that PlanB’s S2F and S2FX pricing models are scientifically unsound and have fundamental problems that mislead investors. And the best thing to do with them today is to forget and move on, focusing your energy on the best hypotheses that are verifiable and have the potential to change our understanding of Bitcoin. In this article, he substantiates his point of view.

In March 1400 a user under the pseudonym PlanB made a big impression on a wide range of crypto investors by publishing an article ” Modeling Bitcoin Value with Scarcity ”(here is a link to a Russian translation), in which he presented the famous Stock-to-Flow (S2F) model. The model predicted an exponential increase in the market value of bitcoin, relying on a seemingly reliable scientific method. A year later, the author introduced the Stock-to-Flow Cross Asset (S2FX) model, which, in addition to bitcoin, takes into account data on the growth in prices for gold, silver, diamonds and real estate. As I will show below, PlanB’s models are scientifically unsound and lack the credibility attributed to them by the author.

According to his website, PlanB is “a former institutional investor with 25 – years of experience in the financial markets , with a background in law and financial mathematics, and has always been interested in risk and return modeling.” Note that he does not claim to have experience in risk and return modeling. This matters as we will soon see that the S2F and S2FX models could not have been formulated by someone with deep knowledge in statistical modeling. of the year I referred to above:

“Linear regression function: ln(market cap) = 3.3 ln(SF) + ,6

…can be written as a power law function: market capitalization = exp( .6) SF ^ 3.3

Probability power dependence with 14% R2 more than 8 orders of magnitude adds to the confidence that SF is indeed the main price driver of bitcoin.”

No matter how impressive it may sound, the author made a fundamental mistake here. Note that the function implies that “market value” is equal to the Stock-to-Flow function. This is an erroneous definition of a model with tautological logic, statistically incorrect for the simple reason that “market value” is decomposed into “Stock Price” (“stock” times price), while “Stock / Flow” (“stock” / “growth”) is the other side of the equation.

Почему модель Stock-to-Flow бесполезна

Put simply, PlanB here is essentially stating that “stock” is a function of stock. A tautology is a trivial statement that is true under all circumstances. It’s like saying that a banana is a kind of banana. Of course, Stock is a function of Stock. That’s why the data is consistent, but scientifically completely useless. The tautologies are correct, but do not carry any useful information. They are correct just by the definition of the terms.

Another problem is that the model is autocorrelated, meaning today’s resulting values ​​are a function of yesterday’s values. Correcting for this, the R-squared value (R2) is zero. Thus, from a scientific point of view, the Stock-to-Flow ratio does not make sense and cannot be used to model the price.

“The model shows high correlation because it uses the same parameter (Stock) on each axis, and when you take the logarithm of two parameters with the same variable, you add it . When the parameter (Stock) is much more volatile, it dominates. The model is autocorrelated. There is no need for S2F at all. Just the ratio of price to time “- Cory Klippsten.

In addition, the architecture of PlanB models gives a misunderstanding of statistical modeling, not to mention that they do not take into account demand. The author could have avoided the tautology by having only the price on one side of the equation and perhaps regressing the price from Flow or Stock-to-Flow, but without changing the parameters, the fit would be different. . In addition, he would have to reduce the time series. Their errors, small inconsistencies, should contain information about the other side of the equation. Without time series reduction, the model will give false results. Simply bringing two slanted lines together creates the appearance of a correlation that simply does not exist.

The Stock-to-Flow Cross Asset (S2FX) model, in addition to the same fundamental error, has additional problems. PlanB claims that the S2FX model does not account for time for bitcoin, but this is not true since its bitcoin phases are a function of time. Clusters are equal to halving periods, and the next phases on the x-axis can already be noted. Other assets in the model are carefully chosen and even the values ​​​​for these assets are selected carefully.

For more details For an analysis of flawed math and PlanB’s bogus statistics, English-speaking readers can turn to the critique “Bitcoin and Stock to Flow”. PlanB actively uses argumentum verbosium – “verbose argument” or proof by intimidation.

“In this article, I will show you why the Stock-to-Flow model is nothing short of a fantasy , a fairy tale reinforced by emotional support from irrational actors, covering up the lack of genuine mathematical knowledge with “proof by intimidation” – btconometrics.

PlanB dismissed valid criticism, stating that the model could be reformulated with price in mind, using completely different parameters to avoid tautologies. However, these alternative parameters are just arbitrary numbers that he changes from time to time. To understand why this is a problem, you can compare PlanB’s approach to the famous Bitcoin Rainbow chart. This chart was created by Hubert Holger and comes with a prominent disclaimer that says in part:

“Color bars follow a logarithmic regression (Почему модель Stock-to-Flow бесполезнаrepresented by by BitcoinTalk user trolololo in 501 year), but otherwise are completely arbitrary and do not have any scientific basis. However, we never change or adjust them. In other words, this schedule will only be correct until one day it stops.”

Holger is completely honest and transparent about his “rainbow” schedule. This is just a guess that has no scientific pretensions.

This is in sharp contrast to the position of PlanB, which, in its articles and dozens of podcasts with its participation, is trying its best to maintain the illusion of having have their own x models of the scientific basis. He also claims in these podcasts that he welcomes criticism, but the behavior of his Twitter account suggests otherwise: anyone who points out a flaw, a potential problem, asks a reasonable question, or even simply “likes” a tweet with reasonable doubt about the correctness of his conclusions, PlanB blocks without further ado.

Почему модель Stock-to-Flow бесполезна

PlanB says it blocks people for the purpose of “noise control” and assures its followers that it welcomes discussion and valid criticism. However, his actions on Twitter suggest a different motivation. Users expressing conscientious criticism of his models are blocked. The question of why the S2FX phases coincide with halvings and therefore look like a time series quickly leads to a block. PlanB blocks those who express alternative opinions. Blocks those who “like” tweets that are sincerely critical of his models. Blocks subscribers for serious questions in private messages. It even blocks those who jokingly change their nickname to PlanC, for example.

This is not the kind of behavior you would expect from someone with genuine financial mathematics or respecting the scientific method. If PlanB wants to honestly claim that its models have a scientific basis and predictive value, then it cannot block and censor legitimate criticism that suggests otherwise.

What does a “utility” model mean

PlanB often repeats George Box’s statement that ” all models are wrong, but some are useful.” But the way he uses this quote distorts the meaning of the statement. Box was referring to scientific models that offer testable hypotheses, not tautologies. In a dedicated article for Nature, Alexander Stewart explains:

” But the purpose of the model is always to clarify our understanding of the subject under study. It sounds simple, but it is not, because the clarity of understanding can only be assessed in hindsight. The model should help us formulate testable hypotheses in a way that moves the field of study forward, perhaps pointing to a new idea that finds empirical support, allowing us to discard an old idea, or making a more accurate quantitative prediction. Bad models are not those that are wrong, but those that are tautological.

Ardent followers of PlanB often object something like: “But both Einstein and Newton made mistakes! His model will work until it stops.” But they miss the point. Yes, indeed, Newton and Einstein made mistakes, but as followers of the scientific method, they welcomed criticism and admitted their mistakes. PlanB avoids both.

The revolutionary models of Einstein and Newton were groundbreaking hypotheses that clarified our understanding of the universe. None of them are known for postulating tautologies. Newton said that forces act on matter. Einstein said that matter is energy and energy is matter. PlanB made the nonsensical claim that “stock” is a function of stock. This is not a useful hypothesis or model. Bitcoiners, who in every possible way separate themselves from quackery and thousands of “shitcoins”, should demand more. is there?

Now that we know that the S2F and S2FX patterns are just lines on a chart with no scientific basis , we can put them aside and move on, focusing our energy on the best verifiable hypotheses that have the potential to change our understanding of Bitcoin. There is no need to tie your expectations to PlanB’s arbitrary price growth chart.

Those who succumb to his argumentum verbosium can move on and gain genuine confidence in Bitcoin by learning about its properties, network effects, and what makes it different from all other projects. Bitcoin has a bright future, and the sooner we move away from bad models, the sooner we can get closer to a true understanding of it.

disclaim any responsibility for any investment advice that may be contained in this article. All judgments expressed express exclusively the personal opinions of the author and the respondents. Any actions related to investments and trading in the crypto markets are associated with the risk of losing the invested funds. Based on the data provided, you make investment decisions carefully, responsibly and at your own peril and risk.

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