#238 PlanB - Why Bitcoin’s Stock-To-Flow Model Is Becoming More Accurate Over Time
3/10/2020 · 70 min · transcript via mlx
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Key topics
— PlanB revealed he works at an institutional asset management firm overseeing approximately $100 billion in assets, balancing a personal Bitcoin conviction with professional constraints around regulatory capital requirements and pension fund mandates.
— The stock-to-flow model quantifies digital scarcity by comparing the total stock of Bitcoin to annual production, mirroring the ratio used for gold; PlanB derived it after reading Saifedean Ammous's *The Bitcoin Standard*.
— Co-integration testing (developed by Engel and Granger, Nobel Prize winners) proves the stock-to-flow model is statistically valid and not spurious—a crucial distinction that strengthens its institutional credibility.
— Institutional adoption faces headwinds from regulatory capital charges, central bank skepticism, and pension fund liability structures that don't suit non-yielding assets like Bitcoin.
— PlanB argues the efficient market hypothesis is semantics; if even 1% of investors act on public stock-to-flow data, the price reflects it, yet risks like government bans or futures manipulation may still be overpriced into markets.
— A major risk to Bitcoin's success remains aggressive U.S. regulation and potential defense of the dollar's reserve currency status; conversely, other nations (India, South Korea, Germany) are becoming more open to crypto.
Market & price signals
— The stock-to-flow model predicted $50,000–$100,000 Bitcoin following the May 2020 halving. PlanB noted that Bitcoin futures trade in contango, yielding 10–20% annualized cash-and-carry returns (versus ~1% for gold futures)—an asymmetric risk-return profile with a Sharpe ratio above one, rare among assets. Co-integration strength is increasing over time, suggesting the model's predictive accuracy may improve. Negative interest rates in Europe and likely U.S. rate cuts (potentially to zero within weeks, per market pricing) create macro conditions favorable to non-yielding scarcity assets. Physical gold flows eastward despite derivative market manipulation, suggesting similar dynamics may favor Bitcoin accumulation despite price suppression attempts.
Actionable insights
— Institutional investors should evaluate Bitcoin not through the lens of efficient market hypothesis debates but through risk-adjusted returns: if stock-to-flow has even a 10% success probability and targets $100,000, the risk-reward warrants consideration within portfolio construction frameworks.
— As negative interest rates spread globally and U.S. rates near zero, retail and institutional capital seeking yield alternatives will likely accelerate; early positioning in Bitcoin or related fund structures (as opposed to direct holdings) may capture this transition before regulatory frameworks fully crystallize.
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