Cryptocurrencies had a great year in 2021. In this period, we have seen the market go from being classified as a billion-dollar economy into a trillion-dollar economy. Aside from that, cryptocurrencies are gaining visibility in the mainstream world with, for example, El Salvador's adoption of Bitcoin as the official digital currency. As a result, investors are looking for the "new Bitcoin" on the market, hoping to find a great alternative in so-called altcoins. Unfortunately, many traders value an altcoin exclusively…
November has not been great for Bitcoin. But it has been even worse for the predictions of one PlanB, a crypto analyst with a devout following. Bitcoin is trading at just over half of what it is supposed to if his predictions had been correct.
This even made him acknowledge that his $98k Bitcoin prediction will probably be a “first miss”.
A Dutch institutional investor turned Bitcoin maximalist is famous for his models that have, in the past, accurately predicted Bitcoin’s movements. For example, he indicated that Bitcoin would reach $47,000 in August and drop to $43,000 by September. He also predicted a spike to $63,000 in October, which he nearly missed by $20,000.
November’s miss was much more significant. Instead of the predicted $98,000, Bitcoin is now trading at $54,400.
Just two weeks ago, PlanB said that the $98,000 price prediction was still in play. At the same time, he pointed to his stock-to-flow model for BTC.
$98K Nov and $135K Dec prediction still in play pic.twitter.com/Df9CsxTdEj
— PlanB (@100trillionUSD) November 14, 2021
The stock-to-flow (SF) is what PlanB is known for. For a while, it seemed that this was what he used for his predictions.
The model is rooted in the “hard money” narrative for BTC. It tracks the halving cycles for BTC to gauge its relative scarcity. After each halving process, the amount of new Bitcoin created by the blockchain halves.
The event is comparable to an interest rate hike. Except for Bitcoin, there is no way to increase production. It’s only possible to decrease it. According to the model, this relative scarcity drives the price upward.
So far, this has been the case. Price increases have accompanied every halving event so far, after which they dropped. The model is great at predicting the cyclicality of cryptos. However, predicting the price in absolute terms is something entirely different – as PlanB’s predictions show.
$98k Prediction Not Based on SF?
For a while, PlanB’s predictions were on the mark. However, as things started looking bad in November, PlanB came out with a “clarification”. He said that he did not base his predictions on the SF model at all. Instead, he claimed that the $98,000 forecast hinged in his “floor model” and insisted that the SF model is still intact.
To clarify: 98K Nov prediction is NOT based on S2F model but on my floor model.
As I said before (in tweets and latest podcasts), I use 3 models:
2) Floor model
3) On-chain model
If for example 98K Nov floor model prediction fails, that does NOT mean S2F or on-chain fails. https://t.co/tj6SSwSzKR
— PlanB (@100trillionUSD) November 17, 2021
The floor model is what PlanB calls the worst-case scenario for Bitcoin. However, it is unclear where the floor model comes from and is related to the SF model.
PlanB himself said that he uses three models. These are the SF model, the floor model and an on-chain model. The on-chain model is supposed to track indicators from the blockchain, such as whale activity and other movements. Unfortunately, while he shared information about the SF model, he did not go into great detail about the other two.
On the other hand, some traders were not buying it. They pointed out that it seems that the predictions hinged on the SF model in one way or another.
Others have pointed to the data presented by another Dutch trader, one that was working with PlanB in the past. He collected data based on the PlanB model and put together a visual representation of it.
This data shows that Bitcoin is still within the margins of what the model predicts. However, according to his data, even if Bitcoin dropped towards $50,000, it would still be within acceptable boundaries of the SF model.
Stock-to-Flow Multiple (463d)
2021-11-25, 23:59 UTC
ln(actual / model)
Actual price: $59,008.66
Model price: $98,248.18
S2F multiple: -0.51 pic.twitter.com/iQF4EdGEFR
— S2F Multiple (@s2fmultiple) November 26, 2021
What constituted acceptable boundaries for some analysts is not sufficient for all traders. Many of these traders expressed their anger toward PlanB and even blamed him for their lost money.
Others have pointed out that all traders are responsible for their own investment decisions. PlanB himself said that he gives out information for free and that he can’t understand why others can blame him for their own choices.
It is indeed absurd that when you publish information for free, somehow people make you responsible for their investment decisions and actions. Everybody is responsible for their own (investment) decisions and actions. Blaming others is a sign of immaturity: NGMI.
— PlanB (@100trillionUSD) November 25, 2021
SF Model – Limitations
While it is true that everyone is responsible for their trading decisions, it is essential to point out the limitations of the SF model.
The model itself rests on the assumption that the scarcity of an asset will lead directly to an increase in its value. This assumption led to harsh criticism of the model. Nico Cordeiro of Strix Leviathan calls it a “chameleon model” and a marketing piece.
While scarcity is essential, it is not the only factor that determines the price. As Coinmetrics founder Nick Carter says, the model leaves demand entirely out of the equation.
This is important because it is possible to make a coin that is even more scarce than Bitcoin. However, if there is no demand for it, it will have no value at all. So Bitcoin will continue to become more and more scarce. However, at some point, the demand will stop growing, and so will the price.
When will that point come? That’s the problem – there is no way to know. Not within the SF model, in any case. However, it is safe to assume that Bitcoin’s price won’t just suddenly grind to a halt. Instead, it will start slowly reacting to demand.
Demand Is Crucial
There is no way to tell when that will happen either. It might have already started happening. If it did, we would see exactly what we see here – Bitcoin’s total price slowly shifting down and to the left of what the model predicts.
Floor model $98K Nov close will probably be a first miss (after nailing Aug, Sep, Oct). S2F model not affected and indeed on track towards $100K. pic.twitter.com/QO3bRUoGo3
— PlanB (@100trillionUSD) November 25, 2021
Bitcoin may be losing ground due to saturation in demand. However, it could also be due to competing coins hurting Bitcoin’s dominance. That would mean that the price of Bitcoin will start growing more slowly or even dropping.
On the other hand, this could be due to transient effects. For example, the recent collapse in crypto prices is likely linked to uncertainty after the failure of the Japanese Mt. Gox exchange. This will all be just a slight glitch if that is true, and BTC will be back on track soon.
Whichever of these scenarios you believe is the case will determine how you feel about Bitcoin. If you think that adoption is just starting to pick up, you should hold. If you believe that it is beginning to fade, sell.
In any case, use the SF model how anyone should use it. That is as a way to see where BTC could be relative to its halving cycles. Simply put, it is not a crystal ball that can give out exact price predictions. Use it accordingly!