About Plan B – Bitcoin Price Prediction, Stock-to-Flow, S2FX model

the other day i came across a recent interview with the bitcoin famous plan b the date when the interview got published on youtube was on december 25 2020. since it's a dutch interview and i'm from the netherlands i guess you would appreciate me sharing my takeaways and thoughts by listening to this interview so plan b is most known for its publication on medium.com in april 2019. in the medium article he shared his stock to flow model he predicted a bitcoin price of 55 000 after the third half name in may 2020. plan b wishes to stay anonymous and therefore not uses his real name nor wants his face to be known on the internet but to give a little background he's male and in his mid 40s in college he studied law and economics and already for 25 years he's working in financial jobs and currently works as an investment manager for a dutch institutional investing organization without his day job plan b would have never come across a bitcoin he says plan b explains that all the cash flow models he learned in school are not working any longer since we need to deal with negative interest rates plan b explains that back in the day you could retire when you had a million dollars in the bank when you still receive the five percent interest on it every single year nowadays you cannot since we need to deal with negative interest rates if you have a million dollars in the bank you need to pay more money instead of receiving money like ordinary people like you and me institutional investors also needed to deal with this challenge of negative interest rates the reason why plan b felt attracted to bitcoin in the first place was the scarcity of it and if i'm correct the first time plan b read about bitcoin was in 2013 in an article from the website the price of bitcoin at the time was hundred dollars the moment he read bitcoin's white paper it clicked plan b recommends you should definitely read bitcoin's white paper if you haven't done so already just skip the technical stuff and the formulas and read the rest tells plan b plan b then dove into the bitcoin rabbit hole meaning he read every little thing about it and started watching antonopoulos youtube videos for those not familiar with antonopoulos antonopoulos is a big name in a bitcoin scene and publishes new youtube videos regularly he has a very high technical understanding of how bitcoin and the blockchain works the moment plan b convinced himself to invest in bitcoin his price already skyrocketed to thousand dollars by the end of 2013.

He thought he missed his window of buying bitcoin a few months later plan b saw the price of bitcoin crashing to somewhat around 100 dollars per bitcoin he explains he then compared bitcoin to the tulip mania which was the first large economic bubble at the peak of the dollar mania in february 1637 some single tulip bulbs sold for more than 10 times the annual income of a skilled cross worker at first plan b was happy he didn't invest in bitcoin but the interest the ad in bitcoin didn't disappear plan b explains that he financially invested in bitcoin around 2015 and 2016.

He then started using his knowledge and experiences by creating calculations predictions and models for bitcoin it's nice to invest in something but i want to have a bigger chance of 50 that i'm right he explains in the interview that got published on december 25 2020. he started creating graphs and models plan b tried to find a correlation between bitcoin's stock to flow ratio and its price and just after the half thing happened the stock to flow ratio doubled and the price went up you can calculate the stock to flow ratio of bitcoin the same as you can calculate it from gold and silver the stock means how many is there available of it for bitcoin for instance there's 18.5 million bitcoins of this moment and the flow means how many bitcoins are added to the circulation every single year so every 10 minutes on average a new block with new bitcoin transactions is mine therefore 6.25 new bitcoin will be given to the miner meaning 6.25 new bitcoin is added to the circulation of the 18.5 million already into existence at the time bitcoin came into existence the block reward for the miner was 50 bitcoins back then every 10 minutes 50 new bitcoins got added to the circulation in 2012 the first halfening took place and the block reward was cut in half from 50 to 25 bitcoins per mind block in 2016 the second halfening took place and the block reward was cut in half again from 25 to 12.5 bitcoins per my block and as you probably already know as of may 11 2020 bitcoin's third half into place and the block reward drops from 12.5 bitcoin per minute block to 6.25 bitcoin per my block and you can easily calculate the newly added bitcoin per year because every 10 minutes 6.25 bitcoins are added to the circulation first i multiply 6.25 by 6.

I now know the number of newly added bitcoin every hour that's 37.5 bitcoin then i multiply that number by 24 hours to find the number of newly added bitcoin every single day that's 900 bitcoins per day currently then again i multiply that number by 365 to determine how much bitcoin is added to the circulation these years so that's 328 and 500 bitcoins are added to the circulation these years so to calculate the stock to flow ratio of bitcoin you then divide the number of bitcoins into existence by the number of newly added bitcoins every year so that's 18.5 million divided by 328 and 500 and the result is 56. so 56 is the stock to flow ratio of bitcoin currently before the third half inning it was 25 and before the second halfening it was 12.

On binance.com they described the stock to flow ratio as follows the higher the stock to flow ratio the less new supply enters the market relative to the total supply as such an asset with a higher stock to flow ratio should in theory retain its value well over the long term so what plan b basically has done is connecting the stock to flow of bitcoin with bitcoin's price he tried to find a correlation between the two and he found it if the model really is valid you basically can predict where bitcoin's price is heading and plan b predicted a bitcoin price of fifty five thousand dollars after the third half inning in may 2020 at the time of publishing his article bitcoin's price was 4 000 plan b first published his research of this first model in march of 2019.

After publishing his article exciting discussions came up okay so the important thing is there may be a correlation between the stock to flow ratio of bitcoin between bitcoin's price but it doesn't mean there is a causal relationship and this is very important to keep in mind search on youtube correlation and causation you'll find several videos that explain the difference between these two so you get a good understanding of it in short it means that two events can be correlated with one another but it does not mean one event causes the other one to occur a famous example is the correlation between ice cream sales and homicides in new york city the moment when ice cream sales go up so does homicide so does this mean ice cream is the cause of murder in new york city well no of course not because ice cream isn't the cause of it it's just a statistical coincidence of course it's crazy to think that ice cream causes people to murder one another right another example is comparing the price of bitcoin with the world's population or the consumption of beer you will also find a high correlation but that doesn't mean one of those things causes the other one to occur when two events are correlated but when one of the events doesn't cause the other to occur they also call this spurious relationship so the question is whether the correlation plan b found between bitcoin's price and its stock to flow ratio is a spurious correlation or is it more fundamental the problem for us normal people who don't understand all the theory behind these models we can't really judge their validity of course it's nice to see a price prediction of 55 000 for bitcoin or even higher if you own bitcoin but it doesn't mean you and me have anything meaningful to add to this discussion right i would like to highlight the input assistant professor sebastian krifgans gave on may 12 2020.

Yes lots of experience with these models sebastian explains a lot of technical stuff in this video that i mostly do not understand but his key takeaway is the following and i'm going to let him explain it himself what is the key takeaway you would would give us here when i when i think about the sebastian at vob 2020 what did you tell me but the key takeaway is you should always be careful um drawing conclusions from correlations we checked see how it processes here that the stock to flow ratio may not improve the prediction for the uh bitcoin wise it's not necessarily a proof that the stock to flow ratio place no wall at all it might simply show up in the um constant upward drift but there's no way we could statistically establish that this upward drift is just driven by stock to flow ratio or by something completely else there's no way we can um separate these potential different causes so the key takeaway is that we should always be careful when drawing conclusions from correlations after plan b publishes his first model in march 2019 he started working on his new model the flow x model the new model translated into an average bitcoin price of 288 thousand dollars after the last halfening in may 2020 and according to plan b this is the average bitcoin price during this halfening meaning between 2020 and 2024 the price will be lower than this but will also be higher than this during this time plan b explains he doesn't second-guess his model's results but he can't deny the model he created can fill when filming this video i own a little more than 0.5 bitcoin so i would gladly see the plan b price prediction come true still i think it's best to listen to professor sebastian's key takeaway be careful from drawing conclusions from correlations don't blindly put all your money in bitcoin because there is a model that tells you bitcoin will go up and up and i would like to end this video here please make sure to click the like button if you enjoyed this video it cost lots of hours to create these videos and i would like to know if you enjoyed watching them also please leave a comment below and let me know your thoughts on plan b's models do you think it's best to be careful when drawing conclusions from correlations or do you think otherwise please let me know in the comments also make sure to subscribe to my youtube channel i'm publishing two new videos each week on monday and thursday lastly i've added two videos here and here and one of them is about me how i started my entrepreneurial journey and the other one is about an interview with michael saylor about bitcoin also if you're interested please check out my other videos and you can find them in the description below hopefully until next time see you later

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