In the final couple of years, the stock-to-flow model proposed by PlanB has go very famous. A quantitative report published on the site planbtc.com shows the model and the prediction that Bitcoin (BTC) could reach the capitalization of $100 trillion. Evidently, the crypto industry, including myself, was fascinated by the logic of the model and fifty-fifty more then by the idea that information technology could reach and exceed $100,000 as early as 2022.

In fact, the stock-to-menses model assumes that at that place is a relationship betwixt the amount of a precious metal that is mined each yr (period) and the amount already mined previously (stock).

For example, the golden that is mined each year is just under ii% of the aureate in circulation (held by key banks and individuals). It takes over 50 years — at today's charge per unit of extraction — to double the stock in circulation, effectively making gold a scarce article.

PlanB hypothesizes that Bitcoin, considered by many to be digital gold, may follow this relationship between the quantity in circulation and quantity mined in the yr, and proposes a Cartesian plane (with logarithmic axis in both the X and Y axes) where Bitcoin's growth over fourth dimension follows a growth describable by a regression line (with power-law formula).

The bounces found every four years or so are due to halving, or halving the expected remuneration for each mined block. The protocol of Bitcoin provides that every 210,000 blocks there is a halving of the number of Bitcoin assigned to each block to the miner who wins the cryptographic exam.

Related: Forecasting Bitcoin price using quantitative models, Role 2

Probably, Satoshi Nakamoto, when he thought of the halving phenomenon, had done so to assume a doubling of the toll every four years. Meanwhile, PlanB has shown that in the first 10 years of history, Bitcoin has moved around an exponential role which means that with each halving, the price increases tenfold instead of doubling.

Reason #ane

The first reason is the following: Can we really assume that Bitcoin will reach $one billion in value effectually 2039?

One billion per Bitcoin would hateful that the capitalization would attain near $twenty,000 trillion, "only" 130 times the electric current value of the stock markets. Not to mention that in the following years, the value, according to this model, would exist destined to increase tenfold.

Plainly, this is inconceivable, even and especially for the next ii points.

Reason #two

The second reason is that the model does non proceed into consideration the demand but only scarcity, and Bitcoin is now no longer the only crypto nugget in circulation. Its dominance is waning due to the many emerging projects that inevitably grab attention (and investment) abroad from digital gilded.

In fact, it is precisely the failure to consider the outcome arising from demand that makes the stock to flow model incomplete; a deficient asset has value if people desire to buy it. A painting by an unknown creative person, even if beautiful and even if belonging to a drove of a few paintings, is worth nothing if there is no interest arising from someone who wants to own information technology.

I discussed this in my article a few months ago when I proposed a model of Bitcoin prediction based on demand instead of scarcity. According to this model, for Bitcoin to get to exist worth a billion, it would take almost four trillion wallets in circulation — quite inconceivable equally a scenario.

Related: Forecasting Bitcoin toll using quantitative models, Part three

Reason #three

The 3rd reason comes from the stock-to-flow construction itself.

If instead of doing the regression from the beginning to today, we causeless nosotros had done it at the stop of each period before the halving, the regression would have always been unlike.

If we had calculated the stock to flow at the cease of the first halving, the predictions would have been to reach the capitalization of diamonds worldwide as early every bit September 2022. Nonetheless, at the end of the 2nd halving in August 2022, the regression line indicated that Bitcoin'southward capitalization would attain that of gold'due south in 2022 while we are even so 1-10th of the way there.

Related: Forecasting Bitcoin cost using quantitative models, Role 4

So, the path of Bitcoin in the Cartesian plane with a double logarithmic centrality, proposed past PlanB, most likely cannot be considered a straight line but a bend (with a mathematical description notwithstanding to be studied) that tends to flatten over fourth dimension, effectively invalidating the overly optimistic prediction of the stock-to-menstruation model proposed by PlanB.

This article does non incorporate investment advice or recommendations. Every investment and trading move involves risk, and readers should behave their own research when making a decision.

The views, thoughts and opinions expressed here are the author's alone and practise non necessarily reflect or represent the views and opinions of Cointelegraph.

Daniele Bernardi is a serial entrepreneur constantly searching for innovation. He is the founder of Diaman, a group dedicated to the evolution of profitable investment strategies that recently successfully issued the PHI Token, a digital currency with the goal of merging traditional finance with crypto avails. Bernardi's work is oriented toward mathematical models development which simplifies investors' and family offices' controlling processes for take chances reduction. Bernardi is also the chairman of investors' magazine Italia SRL and Diaman Tech SRL and is the CEO of nugget management business firm Diaman Partners. In addition, he is the manager of a crypto hedge fund. He is the author of The Genesis of Crypto Assets, a book virtually crypto assets. He was recognized as an "inventor" by the European Patent Role for his European and Russian patent related to the mobile payments field.