The mathematical formula behind Bitcoin Bullishness: Crypto CEO

  • Jack Mallers is the 28-year-old CEO of Strike.
  • Mallers told Insider that bitcoin is the best cryptocurrency to invest in right now.
  • Mallers said Bitcoin’s stock-to-flow ratio sets Bitcoin apart from all other cryptocurrencies.

When Satoshi Nakamoto created bitcoin, he limited the total amount of cryptocurrency that existed to 21 million.

Because of this inherent scarcity, investors right from Mike Novogratz to Bill Miller believe that bitcoin is the digital version of gold. It makes sense that with a limited supply of bitcoin available to investors, the cryptocurrency will only become more valuable the closer we get to the last bitcoin ever extracted.

Jack Mallers also believes that bitcoin is a form of digital gold, and in a recent interview with Insider, he cited the specific mathematical model that predicts that bitcoin will one day be the “hardest” asset and why it is. believe that this makes cryptocurrency an incredible investment. possibility.

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Contents

  • 1 Who is Jack Mallers?
  • 2 What is stock flow?
  • 3
    Below are the stock-to-flow calculations for gold and bitcoin – which have high stock-to-flow ratios – and zinc, which has a relatively lower stock-to-flow ratio and is therefore worth less. The world supply (stock) of gold is 244,000 metric tons and 3,560 tons are produced annually (flow). Its stock / flow ratio is therefore approximately 68.5: 244,000 total supply (in tonnes) / 3,560 total creation = 68.5 stock / flow ratio The world supply (stock) of bitcoins is 18,920,000 and 328,500 new bitcoins are produced every year (flow). Its stock / flow ratio is therefore approximately 57.5: 18.920.000 / 328,500 = 57.5 stock / flow ratio The world’s supply (stock) of zinc is 250 million metric tonnes and 13.8 million metric tonnes are produced annually (flow). Its stock-to-flow ratio is therefore approximately 18.1: 250 / 13.8 = 18.1 stock-to-flow ratio What makes bitcoin’s stock-to-flow ratio worse is its halving events. A “halving” refers to when a bitcoin miner’s reward for creating a new block on the bitcoin blockchain – paid for in bitcoin – is halved. The Bitcoin halving happens once every four years. For example, in 2020, the reward a bitcoin miner received for extracting a block of bitcoin was halved from 12.5 btc to 6.25 btc per. new block. The next halving event will take place in 2024, with the reward reduced to 3,125 btc. Those who believe in the stock-flow model point out that the price of bitcoin shortly after each halving event hits a new all-time high. After halving in 2016, for example, the price of bitcoin rose from $ 500 to $ 1,000 to $ 20,000. After halving in 2020, the price dropped from $ 9,000 to around $ 30,000. The next halving event is expected to take place in 2024, when global bitcoin production is expected to fall by 50%, making bitcoin a much more “difficult” asset under the stock-flow model. When halving takes place in 2024, bitcoin’s stock flow would be (current stock) 18,920,000 + (2 x 328,500) (two years of production) = 19,577,000 328,500 / 2 = 164,250 (half of production after halving, 0.507 ) 119.19 This means that in two years’ time bitcoin will be more than twice as “hard” as it is now, and its stock / flow ratio will easily exceed that of gold. Those who believed that the stock-flow model had a positive economic relationship with the halving events would argue that the bitcoin halving in 2024 could drive the cryptocurrency to a new record high. The slowdown in Bitcoin does not mean that the model is wrong

Who is Jack Mallers?

Jack Mallers is a 28-year-old Illinois native who created the Strike payment platform, which uses Lightning Network, a Layer 2 bitcoin scaling solution, to improve the speed, scale and efficiency of the original blockchain.

Hit a huge success in the five years since its founding. El Salvador, which made bitcoin an official currency last year, uses the Strike app to allow sellers to send and accept bitcoin. Twitter’s tipjar – which enables Twitter’s more than 200 million users to use bitcoin as payment – uses Strikes plugin to send “tips” in bitcoins.

As Strike has grown, Mallers’ authority in the cryptocurrency industry has also grown. In fact, Twitter and the founder of Block Jack Dorsey quoted him as an “incredible inspiration”.

Despite


bear market

Traders have absolute faith in bitcoin and have previously said they believe the price of bitcoin could hit the six-figure mark as early as this year.

Mallers bases his optimism on the power of the stock-flow model. This pattern illustrates bitcoin’s scarcity relative to other assets and proves that bitcoin’s price increases have been directly linked to its rising scarcity – and that future price increases are ahead.

What is stock flow?

The inventory-to-power ratio measures the amount of an asset found in the world and compares it to the number of units of the asset created each year.

The model was started by Plan B, a pseudonym Twitter user with over 1.5 million followers, as well as a background in law and finance. In a recent episode of SALT Crypto with Skybridge Capital’s Anthony Scaramucci – who describes the model as the “most foresighted” for bitcoin valuation – PlanB explained stock-to-flow.

“The big flow model basically says that if an asset is more scarce, then it should be more valuable,” PlanB said. “How do you quantify scarcity? There is a known target, the stock-flow target, the number of years it takes a reserve for a particular asset to rebuild the existing reserve. The rarer an asset is, the higher the stock-to-flow.” flow ratio, the higher the value of this market should be.

The inventory flow equation is simple: inventory (or the total amount of available assets) divided by flow (the amount of assets generated annually). The ratio determined the scarcity or abundance of the asset, and the higher the ratio, the rarer (and therefore valuable) the asset. Mallers would describe an asset’s inventory-to-power ratio as a “duration,” noting that “the harder an asset is, the more valuable it becomes.”

While the stock-flow model rose to prominence during the last bullrun, it has since received a lot of criticism during the recent bear market.

Critics say that according to the model, bitcoin should be closer


market value

of gold because their storage current is equal. While the market value of gold is at $ 11.7 billion, the value of bitcoin is only $ 596 million, and the highest ever was $ 1.27 billion at its highest in 2021.

In addition, given the current cryptocurrency winter, many have lost faith in the stock-flow model. According to PlanB scammers last year, bitcoin should have hit $ 100,000 per piece in December 2021. Not only did it never reach that, but it ended December with a 17% drop and ended 2021 around $ 47,700.

then bitcoin fell further as the stock market downturn in 2022 has brought the price of cryptocurrencies down. Bitcoin’s price is currently hovering around $ 30,000 and there are few signs that it will recover soon.

Marcel Burger, CIO of AMDAX Asset Management, told Insider about his problems with the model. “The stockflow model was introduced as a model for predicting the future price of bitcoin,” Burger said. “Because the model is adapted to a linear regression, but it does not meet the prerequisites required to do so, this model cannot produce reliable results.”

Although Burger said stock-flow is a flawed econometric model, he said it has some advantages.

“It is reasonable to assume that assets that become scarce over time tend to rise in price. As long as demand remains even but supply falls, I expect prices to rise, “said Burger.

In his discussion with PlanB, Anthony Scaramucci expressed his continued confidence in the model despite criticism that it is unsuitable for the recent bitcoin price movements. “There’s an expression that Warren Buffet has that I’d rather be fairly right than exactly wrong,” Scaramucci said. “When you step back and look at it, you more or less do what you said.”

PlanB apparently agreed that its intention with the model was never to map day-to-day bitcoin price movements, but rather to provide a guide to potential bitcoin prices in the long run.

“It is a very principled and very intuitive thing that rare things are more valuable. It uses the same scarcity to add value to bitcoin, “PlanB told Scaramucci.” It would not be very useful for trading, but it would be a very rough compass for investors. ”

For Mallers, it is the underlying idea of ​​creating a value store with high “hardness” that matters most. He is less interested in the daily movements of bitcoin and much more focused on its long-term potential. And it is the “hardness” of bitcoin, as illustrated by the stock-flow model, that makes it a bitcoin follower.

“Bitcoin has reached a difficulty never seen before in the history of our species, it has set a record for how difficult it has been in stock to sink,” Mallers said.

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