“If we look at the above chart, we have to admit that it has all the characteristics to make a great bitcoin meme. In essence, this chart says, “Number go up, 98% accuracy.” And underneath the hood of this meme is some extremely difficult math that I have no idea how to read, never mind question or verify. What these two factors create is the perfect storm for people taking it seriously without ever really looking at it too seriously. Hubris, if you will.”
This is what I said in my previous post on the Stock-to-flow model. And that’s exactly what happened. Not in the way I would have wished though. After years of looking at equities on a fundamental basis and seeing how most models fail to predict basically anything, as well as a lot of poking fun at technical analysis, I had fallen to a trap made up of my own hubris. I never took the SF model seriously enough to even really look at the way it works, and because of that I made a fool of myself trying to prove its inconsistencies (which after further study seem to be very few, if any).
Luckily, thanks to some help from twitter, I’ve been guided towards a better understanding of the model and I now understand its premise and what it means. Thanks to @fraudsta, I now know what cointegration means, and how the SF model can be falsified. I don’t know enough to go into any deep explanation, but I know enough to know that I completely missed the point the first time around.
I stand by some of the points in my prior article, in that some massive shift in demand could still break the cointegration as measured in the past. And no matter how accurate the back testing, fundamental changes going forward could still change things. And people believing blindly in any model will get rekt.
But, that being said, I do sincerely apologize for spreading FUD just because I didn’t do my homework!
Scarcity is probably one of the coolest phenomenon I’ve thought about since going down the rabbit hole.
Is this good for bitcoin? Yes.