PlanB’s stock-to-flow concept has proven a failure, despite its initial success. Industry bigwigs like Vitalik Buterin have mocked it. Buterin, the founder of Ethereum, issued a statement today in which he derided the financial model of the stock-to-flow.
In the tweet, Buterin stated that the stock-to-flow mechanism does not appear viable. This is in response to the fact that its projections have consistently proved incorrect. However, he is not the first to criticize the strategy, which was previously hailed as the Pinnacle of Bitcoin trading.
“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.”
What is the stock-to-flow model, and how does it work?
In March 2019, a Dutch investment company using the alias PlanB launched Bitcoin’s infamous stock-to-flow mechanism. The financial model uses the stock-to-flow ratio to forecast Bitcoin’s value. The latter is computed by multiplying Bitcoin’s current stockpile by the annual quantity of BTC generated.
The Bitcoin stock-to-flow model aims to determine the scarcity of Bitcoin in relation to its price. Due to its apparent accuracy, it immediately became one of Bitcoin’s most popular financial models. Bitcoin, for example, was forecast to be worth $47,000 in August 2021, $43,000 in September 2021, and $61,000 in October 2021 by the model.
The projected numbers failed
When the cryptocurrency market plummeted dramatically towards the end of 2021, PlanB’s stock-to-flow model proved incorrect. Bitcoin’s price reached a high of $69,000 before falling below $50,000 before the end of the year.
The model had predicted that Bitcoin would be worth more than $100,000 by the end of the year.
The collapse of Bitcoin’s stock-to-flow model demonstrates the dangers that await investors who put too much faith in financial forecasts. Such projections have pushed individuals to take on too much risk in the past. They took a risk that cost them a lot of money.
PlanB responded to the tweet of Vitalik by saying people search for a scapegoat to blame when their project fails or their investment goes wrong. He also said that Vitalik was playing the victim.
“After a crash aome people are looking for scapegoats for their failed projects or wrong investment decisions. Not only newbies but als “leaders” fall victim to blaming others and playing the victim. Remember those who blame others and those who stand strong after a crash.”
Bitcoin prices bounced above $ 21,000
Meanwhile, Bitcoin bounced above $ 21,000 after testing the levels of $ 17,622 last weekend. That is a recovery of around 21 %. At the time of writing, it was trading at $ 21,400, up 5 % in the last 24 hours. Similarly, Ethereum too bounced back by 31 % from the last weekend’s low of $ 881. It is currently trading at $ 1,166, up 5 % in the last 24 hours.