Bitcoin S2F model gives false sense of certainty, says Vitalik Buterin

Ethereum co-founder Vitalik Buterin has criticized the controversial Bitcoin (BTC) stock-to-flow (S2F) model, popularized by a pseudonymous Dutch institutional investor known as PlanB.

The BTC stock-to-flow model gained a lot of attention during the bull run as it got several price predictions right, however, the model deviated on a number of occasions during the bull market as well.

Buterin joined the growing list of critics of the model that aims to predict the price of BTC:

Stock-to-flow is really not looking good now.

I know it’s impolite to gloat and all that, but I think financial models that give people a false sense of certainty and predestination that number-will-go-up are harmful and deserve all the mockery they get. https://t.co/hOzHjVb1oq pic.twitter.com/glMKQDfSbU

— vitalik.eth (@VitalikButerin) June 21, 2022

The S2F model quantifies an asset’s price based on its scarcity and was primarily used for popular metals such as gold and silver. PlanB’s popularized BTC S2F model suggests that BTC’s price will continue a steady and impressive path upward with approximately tenfold returns every four years.

The critical problem with the S2F model that many critics have pointed out is the one-sided estimation, where it only takes into account the supply side of BTC while assuming that demand will continue to grow.

Related: Vitalik Buterin shares his thoughts on non-financial use-cases for blockchain

While BTC demand has shown significant growth, other factors such as inflation aided by the Fed money printing spree have significantly affected the buying power of consumers. Thus, the S2F model doesn’t take into account several macroeconomic factors that mostly affect the market sentiments.

Correct, the model only accounts for scarcity/s2f-ratio, that is the only model input. All the rest, demand, macro, crypto, covid, war etc, causes deviation. The model is VERY rough. Also, current extreme macro backdrop causes all metrics (rsi, 200wma etc) to show…