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All your models are broken

Every cycle there is a new viral price prediction model for Bitcoin. From elegant power laws to rainbow-coloured memes, each cycle spawns a new framework claiming to figure out how to value an asset that doesn’t fit into a neat little box. Some models last a few halvings; others don’t survive longer than the current narrative du année.

So for today’s newsletter, here are some post and pre-mortems on six of the more popular projections: What they got right, how they broke, and why none should be treated as gospel.

Stock-to-Flow: The scarcity story that stalled

PlanB’s Stock-to-Flow appropriated a gold industry valuation metric for valuing bitcoin: price rises with scarcity, measured by outstanding stock divided by new issuance. 

The Stock-to-Flow curve fit Bitcoin’s first decade so well that by late 2020, $100,000 looked pre-ordained. Instead, BTC stalled just under $70k and fell 80%+ below the model path during the 2022 downcycle proving S2F critics like Nic Carter right.

Despite the deviation, PlanB released S2F-cross-asset and later S2F-multiples, widening the expected range to $500,000–$1,000,000 by 2025. Those revisions kept the narrative alive but also underscored the model’s weaknesses such as demand-side shocks and the idea that “halvings are priced in.”

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Metcalfe’s Law: Users and price

Economist Timothy Peterson showed that Bitcoin’s market cap often tracks the square of daily active addresses. This is an intuitive extension of Bob Metcalfe’s 1980s theory for valuing networks, which stipulates that the value of a network is equal to the square of its active users. 

Academic follow-ups to Metcalfe’s Law added Lightning nodes, hashrate, and even GDP per capita. But this valuation assumes each connection has equal weight.

Peterson continues to tweak the model, but the original chart has since deviated significantly to the upside as on-chain Bitcoin usage lags behind price.

Bitcoin Power Law

Eyeball any long term BTC chart and you’ll notice the candles trace a widening diagonal channel on logarithmic axes. The leading champion of the so-called Power Law for bitcoin, Giovanni Santostasi, has been proliferating the model heavily over the past couple years.

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