Crypto hedge fund disproves the popular Bitcoin model “stock-to-flow”

According to the recent document released by Strix Leviathan, the popular model “stock-to-flow” was totally wasted and represents no more than a marketing strategy.

Investment management company published a document containing a detailed description of the main mistakes of the initial analysis made by PlanB crypto researcher. The document called his work “a chameleon model”.

Despite its high popularity in Bitcoin community, the model “stock-to-flow” is fatal. These are the words of Niko Cordeiro, investment director and fund manager at quantitative governance company Strix Leviathan.

In its recent article Cordeiro made an in-depth research of the model firstly popularized by the anonymous investor and crypto enthusiast PlanB. Cordeiro underlined all of the mistakes made in both theoretical and empirical basis.

According to him, the model is based on assumption that for obtaining market capitalization in US dollar monetary goods such as gold and silver are put out of the rates of their new supply.

Nevertheless, there is no evidence or researches confirming the theory within the original Bitcoin model, claims Cordeiro, “No evidence or something that would confirm this theory was presented except for separate data points chosen for reflecting market capitalization of gold and silver regarding the BTC path”.

Besides, the article suffers from what Cordeiro calls “naive application of linear regression”.

As far as S2F demonstrated “extremely high” results many took it for granted without going to the depths. But good results do not mean this was a great discovery, and the model developed by PlanB is full of “distractions and data deeepenings”Deficit predicted in S2F is irrelevant to the value.

The document further noted that the thing described by PlanB as a “deficit” differs from the true meaning of this word.

He used “deficit” to describe the growth rates of the asset supply that is measured by stock flow. This way of using the word implies that increase of new supplies raises more pressure from producers.

Although the assumption seems reasonable, it contradicts the fact that high ratio of stock to flow means that the new supply is insignificant in comparison to the current one.

With that on mind, Cordeiro claimed there was no surprise that SF correlation had no direct link to the value of gold over the last 115 years. Market capitalization of gold has been varying from $60 to 9 trillion, while ita SF value remains stable – at the level of 60.

Chart presenting market capitalization of gold in relation to its SF coefficient.

“While higher SF value may be the essential characteristic for a good serving as “hard currency”, the metrics does not say anything about how market members evaluate the asset”, underlines the report.

The left chart shows smooth projection with supply data provided by Glassnode, and the right one demonstrates annual and monthly values increased after each BTC halving.

The very fact of that the metrics evaluates arch of 21 million of existing BTC meaning that its value will reach $235 billion by 2045, makes the model unrealistic. Thus, investors should treat such strategy skeptically even if it calls BTC “the digital gold”, concluded Cordeiro in his report.



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