hcburger Profile picture
Jan 27 13 tweets 5 min read
I have been criticizing the forecasts of S2F model since 2019, but I don't agree with this article. It arrives at some correct conclusions based on wrong arguments.
Let me elaborate.👇
bitcoinmagazine.com/markets/why-bi…
The article claims that the S2F model is a tautology, and therefore totally nonsensical: "In layman’s terms PlanB is essentially asserting that “Stock is a function of Stock.”"
But is S2F really a tautology?
Simply writing down the mathematical expression and re-arranging a bit shows us that this is NOT the case. S2F is NOT a tautology. It does NOT state that stock is a function of stock.
The article makes an ad hominem, stating that @100trillionUSD blocks all those who point out a problem with his model.
Well, I (together with @InTheLoopBTC) have been pointing out problems since 2019 but have not been blocked. In personal communications, PlanB was very friendly.
Yes, I do strongly believe that the S2F model is wrong and that its forecasts will prove too bullish.
But there are right and wrong reasons to say that the model is wrong. Some wrong reasons: stating that
- S2F is a tautology (it's not)
- PlanB is not nice (mere ad hominem).
Another incorrect reason is the lack of co-integration between the S2F variable and price. The concept of co-integration is just not that useful.
Judea Pearl (@yudapearl), the de-facto inventor of causal statistics didn't even know of the concept:
Other reasons I believe are too weak to rule out S2F:

- the model doesn't include demand
- S2F is not a good measure of scarcity
- scarcity cannot create demand.

There is some truth in these statements. But S2F is a mere model, so it's ok if it's imperfect.
Good reasons to be skeptical of the S2F model:

1. The paucity of data points. The S2F variable stays the same within a halving period, so the data points tend to cluster. We have 3 datapoints + the very early history of btc.

~3 datapoints it not much!
2. We have strong empirical evidence pointing toward DIMNISHING returns, yet the S2F model predicts NON-DIMINISHING returns.

There is good EMPIRICAL reason to be skeptical of the S2F model. @InTheLoopBTC and I have written about this:
medium.com/quantodian-pub…
I have written another article which empirically demonstrates that bitcoin has diminishing returns. S2F predicts exponential growth (NON-diminishing returns).
But #btcusd grows slower than exponential.
medium.com/quantodian-pub…
I wrote the above article in December 2019 and already predicted that the S2F model would prove too bullish because of the conflict between: a) empirically observed diminishing returns and b) non-diminishing returns forecast by S2F:
Another empirical demonstration:
The "S2F multiple" is dropping (as predicted by diminishing returns). Since 2015, the multiple has been mostly negative.
The S2F model has received a lot of attention. My (strong) opinion is that it is wrong and too bullish. It's a bad model. But it's almost equally bad to dismiss the model for incorrect reasons.

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More from @hcburger1

Jan 26
#btcusd: Should we expect another leg up this year?
I think not:

1. If the stock market is like an avg 2nd year presidential year, it will move sideways.
#btc is moved by similar mechanisms/confounders and is unlikely to behave very differently. Image
2. #btc just came out of a bull market.
The logical next thing to happen is a bear market, not another bull market.
However: This bull market was weaker than previous ones, which weakly suggests the bear market might also be weaker.
hcburger.com/blog/powerlaw ImageImage
There seems to be a lot of hope that another leg up might be happening anytime soon, but this seems to be based mostly on wishful thinking (as far as I can tell).
Another move down or prolonged sideways movement is more likely than a strong move up.
Read 5 tweets
Jan 24, 2021
1/ #Bitcoin 's price history is full of time based power laws. Inspired by Sornette et al. I looked for bubbles and anti-bubbles that can be described by power laws.
Plenty of them!
Bubbles and anti-bubbles are short-lived. The long-term power-law governs all of bitcoin's history
2/ Same plots in log-log scale. #Bitcoin appears to currently be in a bubble. Bubbles ultimately deflate in an anti-bubble.
3/ Sornette models bubbles in financial markets with time based power laws that have a critical time point in the future. Price accelerates rapidly when approaching this critical time point, reaching a singularity at the critical point.
en.wikipedia.org/wiki/Didier_So…
Read 7 tweets
Jan 23, 2020
1/ I realized that my last article about #bitcoin's diminishing returns and volatility was a bit too long. I'll try to make it a bit shorter, in tweet form, here.
medium.com/coinmonks/bitc…
2/ Conclusions of the article:
- #btc grows slower and slower, long-term
- short-term volatility decreases over time
- these trends should continue in the future due to ever higher capital requirements Image
3/ Diminishing returns implies much lower future #btc prices compared to NON-diminishing returns.
Bitcoin's power-law corridor of growth used diminishing returns. We'll see more evidence for diminishing returns here.
medium.com/coinmonks/bitc… Image
Read 25 tweets

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