Bitcoin’s S2F Model is Flawed, Argues CryptoQuant CEO

The popular Bitcoin stock-to-flow model is flawed, and the asset’s price might not reach a six-digit territory as it predicts, claimed the CEO of CryptoQuant, Ki Young Ju. In a recent interview, he also spoke about the declining issuance of stablecoins, the negative GBTC premium, and the potential consequences for BTC’s price.

BTC S2F Model is Flawed

Developed a few years back, the stock-to-flow model and its variations take into account the annual supply of BTC (flow) and the size of existing stockpiles or reserves (stock) to determine a potential price performance. The forecasts have been somewhat optimistic, to say the least, with the largest one seeing bitcoin tapping $288,000 by the end of the year.

Although the model has many supporters within the community, it also has a fair share of doubters. Ki Young Ju seems to be one of them, as he recently outlined in an interview.

“I think the S2F model is flawed in terms of the demand side. This model is based on scarcity, and scarcity is about the supply side. That’s why the current BTC price deviates greatly from the price predicted by the S2F model.

For example, aggregated BTC reserves for all exchanges have both supply/demand-side factors. If people want to sell BTC, they will send it to exchanges. If not, they (mostly whales) would withdraw from exchanges to custodian wallets.”

He added that the model could become “more accurate” if the creator, going by the Twitter handle PlanB, adds more variables to see demand-side factors.

It’s worth noting, though, that the model has actually provided rather accurate price movements in the past. PlanB has previously admitted that BTC’s price doesn’t go only upwards, but looking on a more macro scale, it has followed the predicted path. As such, PlanB recently concluded that bitcoin performs “like clockwork” in accordance with the S2F.

GBTC, Stablecoin Issuance, and BTC’s Price

Stablecoins, meaning tokens pegged to fiat currencies, gold, or other traditional financial instruments, have skyrocketed in popularity and supply in the past year or so. However, the issuance has slowed down recently, and Ju commented that this is because “many stablecoins are redeemed these days.”

He believes BTC needs more stablecoins or fiat on-ramps to head towards uncharted territory above $65,000, which doesn’t appear to be the case now. He noted that “the trend looks like redeeming stablecoins and less issued stablecoins.”

 CryptoQuantStablecoins Issuance Vs. Redeemed Supply. Source: CryptoQuant

CryptoQuant’s CEO also touched upon the Grayscale Bitcoin Trust and its role in the market. The largest BTC-oriented active fund has had a negative premium for months now, which Ju attributed to competition and ETF hopes.

“I think the main reason for this negative premium is that people think Bitcoin ETFs would be approved any time soon. If ETFs are approved, people don’t need Bitcoin Trust products anymore.”

Canada has already greenlighted three BTC ETFs in the past several months, and Brazil followed. However, the US SEC is still reluctant to do so, even though there’s no shortage of applicants.

Grayscale also announced plans to convert the Bitcoin Trust into a Bitcoin ETF and most recently hired a new executive to help the company on its way for such a product.

Separately, Ju noted that corporations like MicroStrategy and Tesla, which have bought billions of dollars worth of BTC in the past year, tend to use Coinbase Prime and OTC desks instead of Grayscale.

Publication date: 
08/05/2021 - 14:35
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