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Plan B’s model for Bitcoin’s value growth as of June 1st 2021:
Scarcity and Stock-to-Flow
Dictionaries usually define scarcity as ‘a situation in which something is not easy to find or get’, and ‘a lack of something’. Nick Szabo has a more useful definition of scarcity: ‘unforgeable costliness’.
“Precious metals and collectibles have an unforgeable scarcity due to the costliness of their creation. This once provided money the value of which was largely independent of any trusted third party but you can’t pay online with metal. Thus, it would be very nice if there were a protocol whereby unforgeably costly bits could be created online with minimal dependence on trusted third parties, and then securely stored, transferred, and assayed with similar minimal trust. Bit gold.” — Szabo
Bitcoin has unforgeable costliness, because it costs a lot of electricity to produce new bitcoins. Gold and bitcoin are different from consumable commodities like copper, zinc, nickel, brass, because they have high SF (stock-to-flow ratio.) The high stock-to-flow ratio of gold makes it the commodity with the lowest price elasticity of supply.
So, scarcity can be quantified by SF.
SF = stock / flow
Stock is the size of the existing stockpiles or reserves. Flow is the yearly production. Instead of SF, people also use supply growth rate (flow/stock). Note that SF = 1 / supply growth rate.
Let’s look at some SF numbers.
Gold has the highest SF 62, it takes 62 years of production to get current gold stock. Silver is second with SF 22. This high SF makes them monetary goods.
Bitcoin currently (March 22nd 2019) has a stock of 17.5m coins and supply of 0.7m/yr = SF 25. This places bitcoin in the monetary goods category like silver and gold. Bitcoin’s market value at current prices is $70bn. Supply of bitcoin is fixed.
Stock-to-Flow and Value
The hypothesis in this study is that scarcity, as measured by SF, directly drives value. A look at the table above confirms that market values tend to be higher when SF is higher. Next step is to collect data and make a statistical model.
“People ask me where all the money needed for $1trn bitcoin market value would come from? My answer: silver, gold, countries with negative interest rate (Europe, Japan, US soon), countries with predatory governments (Venezuela, China, Iran, Turkey etc), billionaires and millionaires hedging against quantitative easing (QE), and institutional investors discovering the best performing asset of last 10 yrs.” —Plan B
Bitcoin is the first scarce digital object the world has ever seen, it is scarce like silver & gold, and can be sent over the internet, radio, satellite etc.
Surely this digital scarcity has value. But how much? In this article I quantify scarcity using stock-to-flow, and use stock-to-flow to model bitcoin’s value.
A statistically significant relationship between stock-to-flow and market value exists. The likelihood that the relationship between stock-to-flow and market value is caused by chance is close to zero.
Adding confidence in the model:
- Gold and silver, which are totally different markets, are in line with the bitcoin model values for SF.
- There is indication of a power law relationship.
*Disclaimer: I am not a financial adviser. This podcast is an opinion piece. Do your own due diligence before investing. I am not an affiliate and in no way I get paid to promote Plan B. I just find it to be great information to apply and share.
On our Gene Keys Segment, today we’ll be looking at Line 3 of Your Purpose: Movement (blood). We also continue to look at Donald Trump’s Hologenetic Profile as a practical example.
If you’re interested in learning more about the Gene Keys, check out their website: This link leads to the main page.
*Disclaimer: I am not an affiliate and in no way I get paid to promote the Gene Keys or any of their Products. I just find it to be great information to apply and share.