WBD219 Audio Transcription

Could Bitcoin Really be Heading to $288k? With Plan₿

Interview date: Wednesday 29th April 2020

Note: the following is a transcription of my interview with Plan₿, a Bitcoin Quant Analyst. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I talk to Bitcoin Quant Analyst & creator of the popular stock to flow model, Plan₿. We discuss his new S2FX model, the upcoming Bitcoin halving, predicted price action and the impact on miners.

“This thing is not a toy anymore, and it’s maybe not an asset anymore as well. It is going to be much bigger than that.”

— Plan₿

Interview Transcription

Peter McCormack: Mr Plan₿, welcome back to the show. How are you man?

Plan₿: Very good Peter, and thanks for having me again.

Peter McCormack: You're welcome, you know you can come on the show any time. Loved talking to you last time, very popular show, people liked it. I think it's up there on like... It's definitely a top 10 show, it might even have crept in as a top five show, maybe top six, but people really enjoyed it and I think they'll enjoy this one. I've called this one, I've got actually at the top, I put "Stock To Flow Revisited". It's like the revenge part two! All right man, let's get into this. Look, you know my show, you know what I'm like. I like to ask the dumb questions. Normally I say I'm not very technical, well I'm not very experienced in statistical modelling either, funny enough, so what I'm going to want to do with this, I'm going to want you to talk me through it

I've got your new model in front of me, I've been through it a couple of times, I think I get it, but there are some bits I don't understand. So I'm going to go through and ask the dumb questions and you can explain to me what's going on. But before we do that, I think just as a primer, if somebody didn't listen to the last show, perhaps they're new to Bitcoin, they've just joined this week, and maybe they've discover my show, back in March 2019 you released your original stock to flow model, so let's talk about that first. Let's just dive into that, talk about what the original model was, why you did it.

Plan₿: Yeah, as an investor I'm always looking for fundamental models like cashflow models or option pricing models or statistical econometrical models that I work with every day, but for Bitcoin they weren't there yet and that's logical because it's a new asset. So I was looking for a fundamental model and when I didn't find it, I started to build one. So I just went with the white paper and all the people that were mentioned there and the sources, and developed a very rough model that has scarcity of Bitcoin as the basis.

So I was drawn to Bitcoin from a financial perspective and the fact that it's very scarce, that there will only be 21 million Bitcoins ever and that that should be worth something, so I found a way to quantify that, actually by reading Saifedean's book, "The Bitcoin Standard" and the measure that was mentioned there for scarcity was stock to flow. Stock to flow basically measures the amount of years of production of something is available as a reserve above ground. So they use it for gold too.

I knew the stock to flow when I saw it on Bitcoin in Saifedean's book I knew, "Okay, this is a good basis" because I know it from the traditional gold world and stock to flow is on the amount of Bitcoins that is already there compared to the number of Bitcoins that's mined every year, and that was about 25, it's now about 27 years of production. So that was the basis and then I correlated that with the price of the last 10 years, and the results were actually quite stunning, and so I decided to publish it in a very short paper that took me by surprise I have to say. I just published it for fun and to see if there's any reactions from other investors or quants, but it has been quite a ride since March last year.

Peter McCormack: Yeah, very well received. It's put a bit of pressure on you around this halving though?

Plan₿: Yeah, we'll see whether it works for one more halving or not, and I should say that it's a statistical model, so like all models it's wrong, but some are useful. So I hope this one is useful, at least for one or two or by living through this halving in the next two weeks and the year after. So excited about what's coming and if the model holds or not.

Peter McCormack: Yeah, so let's breakdown the original model. For somebody who's never looked at stock to flow, and don't explain it with Bitcoin, let's start with gold. Explain what stock to flow is and how it's measured.

Plan₿: So stock to flow is a measure for scarcity, if you will, and it's very easy. It measures how much gold there is at the moment, that's 190,000 tons of gold, and it measures how much gold is produced every year, that's about 3,000 tons or 3,200 tons. If you divide the 190,000 stock by the 3,200 flow, production, you get the number 58, around 60 let's say, so there's around 60 years of gold production above ground, and that's the stock to flow number.

Peter McCormack: What is that used for though?

Plan₿: You can compare stock to flow of different assets. So for example, you can compare gold with a stock to flow of 58, with silver that has a stock to flow of 33, and you can compare it with Platinum or Palladium or other more commodity like metals, and they'll typically have stock to flows of 1, so very low. 1 is an indication of something being a commodity, an industrially used commodity and not a monetary asset like gold with a very high stock to flow. So it's very useful in dividing assets between commodities and monetary assets.

Peter McCormack: Because a monetary asset is hoarded and held?

Plan₿: Yes and in a way... I call it scarcity or that was what I was looking for, but you could also call it a measures holding in how much is held by investors or used by industry.

Peter McCormack: And Palladium, that's not held by investors really.

Plan₿: Exactly and it's very counter intuitive by the way, because a lot of commodity investors I speak to, they say, "Okay, but there's a lot of gold and there's far less Palladium or Platinum. So Platinum and Palladium are scarcer." But then I say, "No, because the production is also very high." In fact, the production is about the same as the stock of Platinum and Palladium, and what that means is that producers do have very much control over the price as you can see in oil as well, which has a stock to flow of about 0.25, very low.

So producers have very much control over the price if stock to flow is low, because if the price goes up, they just make more and they push the stock to flow down again. So it takes some really weird event, something historically significant, a war or something that's very improbable to escape this commodity trap and Nick Szabo calls it the unforgable scarceness, so something has caused it and once it's there it's very hard to get, but once it's there then you're in a different domain, if you will, the monetary domain.

Peter McCormack: Right, okay. So that's a very useful starting point and this relates to Bitcoin because Bitcoin can't really be a commodity, right?

Plan₿: Exactly, and in fact this is one of the main things that Satoshi Nakamoto invented, the digital scarcity, because it's counter intuitive. If something is digital it can be copied like a picture or a movie or music, so you don't think about scarcity if something is digital. Yet Satoshi still managed to make something scarce and digital and that's really an invention actually, and it's worth a lot and it doesn't go away anymore, it's very useful.

Peter McCormack: Did you get any criticism from the original model? I'm trying to remember.

Plan₿: Yeah, actually a lot and I like that. It's just the first thing and if I'm wrong I want to know. I use it for investing so I really want to know if it's wrong, and I got some... There were some very positive reactions, of course, like "It's great that you do this and that you try it, and it's a great insight", but it actually activated a lot of fellow investors, quant investors, quants in normal banks and traditional banks and pensions funds that tried to replicate it, because I had made all the models and the data available.

So they replicated it, it was very fast actually the same day it was replicated, and some noticed some statistical oddities in there. I don't want to get too technical, but for the kind of regression analysis I did, there are some statistical things that need to be met and they weren't there. Then somebody else came along and said, "Okay, but you can look at it this way then it's great again." Actually, this debate has been ongoing for a year now and it's certainly not finished, because I saw even today we're recording, what is it, the 29th and there's a big debate going on between all the quants right now as we speak, and that's one of the great things about science, that everybody talks about it and there's a lot of disagreement. Yeah, I like it a lot. But so far it has not been falsified, so it's still standing and it's there.

Peter McCormack: But it works until it doesn't and we're all looking at you right now man, we got this halving coming, but listen, until we spoke the other day, I didn't realize you were working on a new model, you said to me, "Look Pete, I got this new paper coming, got this new version of the model." Why did you come back to it? What was inspiring you to revisit the model?

Plan₿: Actually two things. One thing kept nagging me, it kept irritating me from the beginning. If you look at the original paper, and some have noticed it by the way, you see this model that I made, stock to flow versus price and a straight line, but you also see the gold dot and the silver dot in the chart. So I plotted gold and silver in there, but they were not part of the model. They were there because I liked it, I knew the stock to flow measure from the gold and the silver world, so that was one of the charming things of the model, that it's not only a time series model but there seem to be some relation with gold and silver as well.

So I plotted it in there and I said it's some kind of benchmark and it gives me extra confidence and later I tried to put it in a formula as well together with other commodities. So I ended up, and the ones who follow me they know that, but I ended up with two formulas, one of the Bitcoin time series and one for the gold, silver and all the other commodities. Having two formulas for the same thing that just didn't feel right, so I was always looking for this one formula. Actually it's funny, Raoul Pal from Real Vision...

Peter McCormack: Yeah, love Raoul!

Plan₿: Yeah, so Raoul was actually very early and he saw, before I saw it myself, that there is a link with gold and we had this interview somewhere last year where he actually said, "Yeah, your model is useful for gold and silver. It is useful for Bitcoin, but also for gold and silver" and I said, "Well it's not part of the model itself, it's not part of the formula, it's a benchmark, but I can't see how they fit together" and we both felt that it should be together, but he recognized earlier that I did that there was something there, and it's only until last Monday that I quantified the relationship.

I was able to merge the two formulas into one, so that was a real eureka moment, I was very happy about that, and that was a long held wish to combine two formulas into one and bring gold and silver into the formula, and that makes it a cross asset model. The other thing is that I wanted to introduce a new way of thinking, another perspective, on the same data because I didn't use other data for the second model, but just looking at it differently because we have been looking at it like a time series.

So all the quants, and me too, we just went into one path of time series, of co-integration is a term you hear a lot and added the story about the drunk and the dog and stock to flow and price keeping very tight to each other, the rubber band, those kind of narratives, that was the perspective we had on Bitcoin and the time series model brought with it all kinds of statistical difficulties, questions like the co-integration, stationarity and all that stuff.

But that's one way of looking at it and in fact, the new model, S2FX, the cross asset model introduces this way of looking at with phase transitions, and I spend one paragraph on it in the article to explain it, but the phase transitions I think are very important. It means that it's like water. Water can be ice, it can be water that you can drink, it can be liquid, it can also be gas, vapor, so it's all water but it's totally different properties, different phases and you have that in finance as well.

For example the dollar, we always talk about the US Dollar, but if we look at the last 200 years the dollar hasn't been the same. We've called it dollar, but it used to be a gold coin and then was a paper because that's much easier and you could always get gold coins, you could go to the bank with a dollar bill and you could get your gold. Then in a third phase, it was 1971 when they cut the link with gold, President Nixon did that, and then it was total fiat, there was no link with gold anymore and in all those three phases we call it dollar, but those are very different dollar assets actually, and we notice that in Bitcoin too.

I reference a study by Nic Carter in 2018, he had investigated the Bitcoin narratives over the last 10 years. So Bitcoin started out from the white paper as a proof of concept basically, of the system that Satoshi invented, peer to peer, e-cash and proof of work, so it's a proof of concept of that paper.

Peter McCormack: It was kind of a toy.

Plan₿: Exactly, a toy! It was never worth more, the whole Bitcoin market, than $1 million in those first two years, and then came the transition. It went from a toy, magical internet money, to dollar parity. So one Bitcoin was worth one dollar and that was in fact a very big achievement and it got big traction then because it meant that you could use it for payments, coffee, micro-payments, content on websites and it was the payments phase if you will, and then it started to grow very hard, the price increased very hard after the first halving in 2012. The price shot up from $10 to $100 to $1,000, and even $1,200, so it approached the level of gold, as 1 ounce of gold was $1250, I think at the time.

So there were all those stories and I remember it well, they were talking about gold parity, so we had the US Dollar parity at $1 and now we were talking about gold parity, of it being worth more than 1 ounce of gold, which is just a milestone, but still the narrative changed from payments to E-gold. Nowadays we're one halving further than the halving of 2016, and we reached two financial milestones. One is the $1 billion transactions per day, which we have and we're far beyond that, and the other one is $100 billion market cap if you will.

That's small if you compare it to US Dollar, but it's not that small it's about the size of a big bank in America, it's a large cap in the S&P-500. So it's a financial asset, especially with future markets in Chicago and New York, and legal clarity all around world getting better. So it transformed from the proof of concept phase, to the payments phase, to the E-gold phase and now in the fourth phase, the financial assets phase if you will. So I found that very interesting that those phase transitions that you see in water, but also in the dollar and also in Bitcoin was a good lens to look at Bitcoin, and maybe even a better lens than the time series lens and the co-integration lens that we have been looking at.

Peter McCormack: Right, because there isn't a specific timeline for these, although these phases do seem to follow the halvings, right?

Plan₿: Yeah, it's a bit of both. So you could say that I integrated the time series model into the cross asset model where I converted... We'll talk about that later, but where I converted the time series into the phases that we just talked about, and then added gold and silver, and then see them all as different assets. So it's sort of a mix of the two.

Peter McCormack: Because one thing I would throw in there is if you look at the change of the dollar, it seems like the phase transitions for the dollar is more about how the US Government wishes to be able to manage and manipulate the dollar, really. Whereas if you look at the phase transitions of Bitcoin it's almost like Bitcoin's growing up, it doesn't even... The proof of concept has done great, then payments, but even when it becomes e-gold or financial asset it still can be used for payments, but what you consider it can do is so much more.

Plan₿: Yes, I agree. With Bitcoin, it's more like a maturing aspect in there and of course the fifth phase is very interesting. So what will be the next transformation? How will that look like?

Peter McCormack: Have you thought about that?

Plan₿: Yeah I did, but I'm not going to speculate. I think there's people that can do that far better than I, but what I hope is that where the first paper with the time series activated a lot of quants and actually brought in some banks and institutional parties as well, I hope this way of looking at it brings in some strategic planners, some geopolitical thinking, maybe some military thinking even. For example, the narrative study that Nic Carter did, it stopped in 2018. It would be very interesting to see an update of that and we could sort of project what's happening in the world right now, and lots is happening of course!

We're at very strange time, where the strange things with the virus, oil, the money printing, it feels like a phase transition could happen and we need some military, strategic, geopolitical thinking to help us guide there and put some markers on the way, put some scenarios there that we can talk about. So it's upon thinkers in that area to join the journey and think about the fifth cluster and phase.

Peter McCormack: State adoption.

Plan₿: Yes, and of course I'm an investor point of view that's also interesting because the dollar example you mentioned, it's politics that does all the changing, but if you look at it from an investing point of view it's time series, right? If you look at 100 years of data, it's always expressed in dollars, but you have to recognize that those are not the same dollars before and after 1971, and before that there's also break points like that. So every time you work with time series you have to make sure there's not some break in there that should give some consideration.

Peter McCormack: But what did the phase transitions do for you by understanding them, how does that affect the model? Does it allow you to rationalize the increase in value?

Plan₿: No, that's certainly not a goal. What it does actually is remove the time element. So where the time series is in my case a monthly series with stock to flow values and Bitcoin prices, and that's why I thought it was 111 data points I had, 111 months, but what we actually do here in the new model is clustering those data points. So we look at a stock to flow on the X-axis and market value on the Y-axis and then there's a picture in the article as well, if you look at it without any statistics, just look at it, you see dots, you see data blobs...

Peter McCormack: I'm looking at the blue dots here.

Plan₿: Yeah the blue dots, and you can recognize the clusters, the phases, those are the phases if you will. You could treat it as a time series, that's fine if you bring the time to the X-axis, but I think we're dealing with a different thing here. I like the quote that I used in the article as well, it's from Bragg, who is an Australian guy who got the Nobel Prize for X-Rays and he said, "It's all about the way of thinking about things and not about how much data you have." So in fact this is the same data, the blue dots data, it's the same data as the first model, but if you just look at it, you can think about it in time series and that's what we did first or clusters or phases if you will.

I must say I like the phase view right now. So from there I started to quantify it, "Let's just do it" and make a cluster analysis and that's the next picture in the article. It shows the clusters on top of the data blobs. Think about the clusters as the centres of those blobs, like a blob of data, maybe 100 data points... No it's less, it's 40 data points and then there's a centre in there, centrally, and that's what the cluster is. Then you do that for every phase.

Peter McCormack: This is where I need some help. Okay, so I'm looking at the chart. Explain to me how does a blue dot come to appear on the chart, just one on its own, how does it come to appear there?

Plan₿: Yeah, let's look at the current phase, the fourth phase. So it's a data blob that spawns form, in this case, the last halving in July 2016 until today, and you see all those stock to flow values on the X-axis and market values of Bitcoin on the Y-axis. Then you take the exact middle of that data blob, and in mathematical terms that's the... You minimize the distance, you choose the points so that it minimizes the total distance of all the points together.

So you're looking really for the centre, and I must say there's a lot of ways of doing that, of measuring that so you could have sort of the average distance, but I'm specifically looking here at the medium distance. So the most frequent stock to flow and the most frequent market value in this dot, in this data blob, that's what the algorithm search for, where is the cluster the most dense? Where are the most dots situated? And that's the point that it chooses, and it does that for all the four data blobs.

Peter McCormack: What are the data points though?

Plan₿: The data points are monthly numbers of stock to flow and Bitcoin market value. So for example, today is 26 stock to flow and $114 billion dollars or something market cap of Bitcoin, and last month it was slightly different and you do that for every month last 10 years. So what in fact you do, you compress all the 100 plus data points, months, into four clusters and that's what you use as an input for the model then. Not the 100 plus data points, but the clusters of those data points.

Peter McCormack: So you analyze those clusters, did you notice the clusters before you started looking at Nic's work? Did you just do this outside of looking at the narratives around Bitcoin?

Plan₿: No, I learned about Nic's work later, but I did notice in the data there were blobs. Of course I saw the halving effects and I noticed the jumps around the halvings, but I also noticed, and I think everybody has felt it who was in Bitcoin last couple of years with the 2017 peak and then the crash to $3,000 now we're up again. But on average, if you look at the journals, on average the last 3, 4 years was somewhere between 6 and 7. It's very strange that it can keep at one price level in such a long period and the same happened in the period phase before this, and the phase before that, and the phase before that.

So I notice it but I never quantified it. I just use all the data and thought, "Well the more data the better" and usually that is the case, but in this case I don't know. There's a lot of people who use daily data or weekly data, so much more data points than I use with the monthly data, but all it does is make the data blobs thicker, denser and it doesn't really move the cluster. So I was thinking, the more data you use the more noise you ad and if it doesn't move the cluster, the middle of the data blob, then the real signal is that cluster, so that you use that.

Peter McCormack: And then so are the clusters, are they getting more defined? Is the data becoming more accurate? Is it more accurate as we move through these transitions from one phase to another?

Plan₿: No actually, you could measure that maybe, how much data points are in the circle around the cluster middle, I haven't done that yet. I would say from just looking at it, it could become a little bit denser, but I don't know. There's no guarantee that that stays or that it will be a trend in the future.

Peter McCormack: And there isn't a fifth phase that happens within the next three, four years. Say it just stays as a financial asset, but the value goes up as the stock to flow reduces, does that affect the model at all? Does it need a fifth phase?

Plan₿: Yeah, it actually needs a fifth phase because we know that the stock to flow will double from current 25 or 26, what is it 27, to around 56. So we know that there will be a blue dot to the right and if it stays at the same market cap level, then it's out of the bands of the model. But it did this three times before and then it shot right up to the model value, so that is the big question actually. So we know the stock to flow is going to double, the blue dot will go to the right, the question is, will it also go up a fifth time more in line with the silver and gold? That is the big hypothesis that is behind it.

Peter McCormack: Yeah, but what I'm saying is, can it... So the blue dot can go to the right as we get to, say 56 and the market cap can go up, but that happen with it still just being a financial asset, right? It doesn't need a new defined narrative?

Plan₿: Oh that's what you mean. I think it does because if the next blob is indeed around stock to flow 56 and it follows the model market value, then the market value goes to $5.5 trillion, that's between silver and gold, but that's like, what is it, 50 times more than it is right now and mind you, that's a lot, but it did that every time it made a phase transition like this. So a $5 trillion dollar Bitcoin is a totally different beast than $100 billion current Bitcoin, because $5 trillion US dollars, that's more than the monetary base of the US Dollar.

Peter McCormack: So it needs more people in the market, more buyers and sellers, it needs more market activity. So what are they coming in for? Because if you go back through your narratives, I call it like a toy, but the proof of concept was a bunch who have interest having a play with it, and then they would kind of expand it and people started to pay for and buy some things with it, and then the digital gold narrative came in so people started investing, and then opening it up to financial markets with futures and CME and Bakkt.

All of these narratives create a wider market, a wider pool of people who are interested, so I guess what you're saying is, if the fifth narrative... You're not going to say what it is, but I guess if I said, "Okay, maybe a nation state will start using Bitcoin or perhaps some of them will start settling in Bitcoin." That is something that can increase the confidence, increase the number of people who are interested in Bitcoin and therefore takes it into that new phase?

Plan₿: Absolutely, and it's needed. It's not some continuous growth towards that point. You don't go from $1 billion to $5 trillion, those are totally different leagues and totally different worlds. So yeah, it could be a nation state, it could be a nation deciding they want to get paid for their oil in Bitcoin or some central bank that decides, "Okay, maybe it is wise to put some very small amount, whatever amount, in Bitcoin" because Bitcoin is already bigger than most currencies in the world. I think it's bigger than about 100 countries.

Peter McCormack: It could be Russia, did you hear Putin talking about cryptocurrencies?

Plan₿: I did, I think it would be...

Peter McCormack: What the fuck?!

Plan₿: Yeah, but it would be so extremely smart of Russia to do that because you don't need much money and we're printing anyway. So if you're printing Australians or maybe Russia less, but if you're printing a lot of money, why not a little bit? It's the asymmetric returns of something going 50x, it doesn't hurt that much, but if you are right, you're really a winner as a country.

So I think that makes sense, but there could be other narratives, it could be... It's a financial asset now, but there's no institutional investor like my employer who's going to touch it now. It's too small, it's too new, and there's not much fundamental models, mine is the only one out there. So what are you going to do? But if it now works, if it seems to follow the stock to flow and if it seems to go into the next phase, makes another jump in price, then it might become a institutional grade asset and that it something what it isn't now.

It is not a institutional grade asset, Bitcoin, because it's a toy for rich boys, for billionaires and early innovators that were there early, and some hedge funds that are outside a scope of regulation, but there's no bank, no pension fund that even dares to touch it. So before we talk about nation states and global reserve currency, I think there's some states .

Peter McCormack: In some ways does the new model give you a get out where the previous model didn't give you? So for example, the previous model, if we'd gone through the halving perhaps even six months after, a year after, we hadn't seen that increase in price, people have been questioning whether the model itself is broken, but actually it needed this extra kind of dimension of data to rationalize why there was...

Because we're talking about supply and demand here and each phase creates, as we said earlier, like a new poll of potential buyers and also sellers, but if we'd gone through the halving and there hadn't been a change, people would say the model was broken. But the model wasn't rationalizing why there was this increase pressure.

Plan₿: Right, and this new model doesn't either. It doesn't really give much more than the stock to flow increase as a reason for the market value increase. But what it does do is give another perspective, another way of looking at it, and I like that way of looking at it because it's the jump in phases that is something that is easy to imagine, and I think at least in my opinion and especially right now with everything going on from money printing and virus and oil etc, so I think it's the same thing really. The model doesn't use other data, but the way we look at it through this phase transition lens is creating a new way of thinking, at least it does it with me I notice.

Peter McCormack: We might break through $9k in this interview, we're up to $8,877 which would be interesting. Okay, let me ask you something else. What was quite interesting about this is also, it's not like there's a specific point in time which this is pinned to for this kind of next phase in Bitcoin's life, where essentially there's no limit to the time, but essentially we're talking about the next four years, right? Does something happen over the next four years, and the model allows you to have those outlier dots, so if potentially something doesn't happen within the first six months of the halving, but potentially there's a small change, so the model allows a time for Bitcoin to evolve into this next phase, yeah?

Plan₿: Absolutely, you see that in the last blobs as well. The last phases, especially after the halving nothing happens or maybe it goes up a little bit and the next month it goes up a little bit, but it can take a year before the new cluster is actually there. Actually I think it will also overshoot like the last times, there will be FOMO. Imagine what happens if, you said, we go through $8,900 maybe this interview, but imagine what happens when we go through $15,000 in the next couple of weeks or months, that will create some enormous FOMO!

People are to be missing out and that could trigger something as well, so that's the scary thing in one way, but the logical thing as well, it will overshoot the cluster the next phase and it will go down again as well. So we will see exactly the same thing as we saw in 2017 and 2018, and the years before that. It will go up far beyond the numbers we just talked about, so the model allows for a lot of variants around the dots as well.

Peter McCormack: Okay, and as I go down the post itself, I actually get to the version where you include silver and gold in there, which is very, very interesting that there is almost a perfect line through the centre of all six circles. I think, if anything, the last cluster just slightly misses out, but it's close enough. What happens to the model say, if something doesn't happen over the next four years? Does it break the model? Is the model dead? What happens?

Plan₿: Yeah, like you said, and like the last model, the first stock to flow model, the time series model, it can break. So if the blue dot stays or it goes to the right, stock flow doubles but market value doesn't, then the model would break somewhere in the next four years and maybe earlier than that, because if half of the points are below the model line then it becomes very hard to get the average back on the model line. So we will know, I'll always get the December 2021 as a nice sort of one and a half year from the halving mark. We will know by then if this hypothesis is okay, and we really have out of sample tested the model then.

Peter McCormack: Yeah, and I saw a thread from DilutionProof where he said, "I think it's important to emphasize that these models should not be used as absolute price targets." But these models are used for some way for people like you, as investors, to get some kind of understand of the market so you can kind of invest with confidence, and you accept that models may break, right?

Plan₿: Yes, that's a very good point from DilutionProof. That was a very nice thread by the way, where he summed up the whole history of the stock to flow model. There's a very famous quote about models, it says, "Models are always wrong, all models are wrong, but some are useful" and that's very true if you look at weather models. They are always wrong but also very useful, and especially for one or two or three days out, and that's what I don't like about a lot of comments about, "Yeah about the model, but how does stock to flow go to infinity and does the value also go to infinity?"

That's 100 years out, you don't expect the weather models to forecast the weather next month or next year. I would be very happy if it would only forecast the next halving or maybe two halvings correct, that would be very useful right now. You're very right as well about it's not very precise, the models, and that's another famous quote that I'd rather be roughly right than exactly wrong, and that's why I always talk about orders of magnitude with this model.

It's not about the exact dollar value of the Bitcoin and that's also what I like about the phases now, they are very rough targets and the actual Bitcoin will be above, below, scattered around that target, and that's how we should look at it. Not very precise, it's a model and it gives us... You can get married with a model and believe in it, and put all your belief and money in there, and that's so stupid. You should use a model as a way of thinking, as a way of structuring your thinking about something, and maybe get some rough direction from it, and I think that's what we're having here with this S2FX model.

It gives a very, even rougher estimate than the earlier model, but I think it's more useful because it forces you to think in phases, in big steps from, in this case, $100 billion Bitcoin to a multiple trillion dollar, $5 trillion Bitcoin market value. That's huge and it's not going to be a gradual thing, something is going to change in the next couple of years or not, and then all that's off, but let's look with some strategic thinking and military experience and geopolitical theories about how this could happen, and what are the markers, what do we have to look for?

That way the whole community is evolving as well, from developers to early speculators, to hedge fund investors, to now the first quants of institutional investors, banks and pension funds are there, but we need political thinkers as well and military thinkers. This thing is not a toy anymore, and it's maybe not an asset anymore as well, it's going to be much bigger than that in my view.

Peter McCormack: Yeah, I find it interesting. So I looked at the S2F model previously and obviously got excited about it, but at the same time, Plan₿, I did look at it and think, "Well this is just making some assumptions that the drop in the Bitcoin subsidy every day would suddenly lead to less Bitcoins being in the market and then the price going up." I didn't buy that entirely on its own, I just didn't. I did have a feeling, like I wondered if through the next halving it would break because we are talking about psychological barriers and also of buying a quite high priced single coin asset, right?

One of the things, I do think the price of Bitcoin piss people off, I know it does actually because friends ask me about, "How much is it?" And when you say it like, "Oh it's $8,000." They're put off. Whereas if everything was priced in sats, they wouldn't be. If it was, "Oh yeah, you can get any amount of sats for $10." I think it's less of a psychological barrier. But the narrative part makes it a bit more interesting because actually, what we're really talking about here is use cases, we're talking about people in the market, and then because we're talking also about a scarce assets, that is what is leading to the growth in price, and that is a much more mature way of looking at the model.

Plan₿: Yes, I totally agree. The model itself doesn't give the answer, it doesn't give why, it doesn't give why so much critique that it doesn't model explicitly the demand, it just give a rough indication of where it has be based on supply. But the narrative and the why is, we don't know why the halving is important because you could argue the number of coins will halve, the supply will go from 1,800 Bitcoins to 900 after the halving, but that's still very little compared to the million plus Bitcoins that is traded every day.

It's less than .1% of the Bitcoin, so how can that be that that has an impact on it? On the other hand, if you think in narratives about the halving, if you look at what's happening in the industry, in the market, it's not hard to see why it has an impact. Before the halving, maybe not now, but a couple of months back, there were big miners with old equipment and very high priced electricity, mining with their equipment. That will be obsolete. So all the weak miners, they will die, they will stop mining because it cost more than the revenue. So the weak miners go.

Same with the investors, the weak hands are shaken out by the volatility in the market, so only if you have a really strong belief you're in there, and that's... I know what's worth more, a market with weak miners and weak holders, weak hand investors or a market with very strong miners, professional grade, latest equipment, low energy cost, and really strong hand, strong vision investors? That's the perfect set up for growth, for a transition to the next phase, if you ask me. The narrative for me is, even if you don't know exactly what it is, it's very simple.

Peter McCormack: Have you mapped any other data onto this such as number of wallets, volume traded? Have you mapped that into this at all?

Plan₿: Yeah, I do have the data. So I have a full node running on a very large computer that has the whole 300GB database with all the transaction in there available for crunching data, so I can see who sells, who buys or at least, what kind of wallets, old wallets, new wallets etc, I can see the patterns that are in there, number of Bitcoins, number of miner coins, so everything that's on the blockchain you can model, then can look into that. But I haven't published that yet and I might be in the future, but it's mainly a huge open field for hunting.

Not much work is done there, there's some companies of course that are doing it and also some very good research reports out there on Twitter etc, but I've been looking at that and it's a quant haven. That much data, that much patterns that not much people have looked at. So that will be one of the future things for me to model.

Peter McCormack: Okay, listen, look, at risk of hyping people too much, you have come out with a target, potential evaluation of $288,000 per Bitcoin, is there a range around this? What is the range we're talking about though?

Plan₿: Yeah, I haven't even looked at that, it's that fresh. Just looking at the chart in the article you can eyeball it by saying that the all time high will be at least a factor two higher and the low will be at least a factor two or three lower than that. So it dances around the dot with quite some volatility. I haven't really put a 95% or something bandwidth around it, but it's very easy to do and that will be done in the next couple of days or weeks.

Peter McCormack: Well if it does I'm going to force you to at least dox yourself to me, so I can come have a beer with you, because I would be very happy with $288,000 Bitcoin! Like some people said, "You only need one Bitcoin and you're set for life."

Plan₿: Absolutely, let's do that with the beer because actually I am anonymous, but I meet a lot of people or I should say I met a lot of people, because traveling now is of course not possible, but when we go traveling again Peter, let's have that beer in Bedford or Amsterdam or where we are.

Peter McCormack: I think Amsterdam over Bedford. I love Bedford but... All right, last couple of question before we close out. Again, appreciate your time and I feel like you've given me an exclusive on this interview, which is pretty cool. Have you received any criticism? I did notice on the medium article very positive, but there was one person who was a little bit critical of the model, have you received much criticism of it?

Plan₿: It was mainly very positive, but of course it's always the case if you predict higher Bitcoin prices. There were also some critical things like there's only six data points, which is not much, maybe it's too few even and I pointed those out as well myself, in the article, but people picked that up and... So the few data points was one and the other one... There was another one. It has been wild lately with the response on the article so I haven't even looked at half of all the comments. I'm sure there will be a lot of criticism and I hope it will be there from the quant world, but also from the investment world. So I'm really looking forward to the debate.

Peter McCormack: All right, man, listen, I appreciate your time. As I close out, what's coming up for you? Anything else you're working on, and just let people know for those weirdos who don't know you because everyone pretty much knows you now, but for the weirdos who don't, how they find you.

Plan₿: Thank you! Yeah, they can find me on Twitter, I'm Plan₿, @100trillionUSD and all my work is there, all the tweets. One of the obvious things that's going to happen in the next couple of weeks is the halving, so I'll be at some of the halving parties because it's a big celebration, of course nothing will happen with the price, but there will be a big celebration so I'll hop in to some of them and I'm very much looking forward to all the interviews, the podcasts and that this article has already a trigger right now.

Yes Peter, you were the first and you planned this very well because we didn't know about the article and the interview was already there, it's very lucky, and I'm very lucky to be able to have the opportunity to talk about it this early after publication! So thank you very much.

Peter McCormack: No, any time man. Look, you're always welcome on the show, love talking to you, and listen, good luck, great article, and hopefully I'll speak to you soon, man. Take care Plan₿ and thank you for coming on the show!

Plan₿: Thank you!