The Math Formula Behind Bitcoin Bullishness: Crypto CEO

  • Jack Mallers is Strike’s 28-year-old CEO.
  • 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 crypto investments.

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

Because of this inherent scarcity, investors ranging 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 as we get closer to the last bitcoin ever mined.

Jack Mallers also believes that bitcoin is a form of digital gold, and in a recent interview with Insider, he mentioned the specific mathematical model that predicts that bitcoin will one day be the “hardest” asset, and why it is. investment. opportunity.

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  • 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 less valuable. The world stock (stock) of gold is 244,000 tons and 3,560 tons are produced annually (flow). So the stock/flow ratio is approximately 68.5: 244,000 total supply (in tons) / 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 annually (flow). The stock/flow ratio is therefore approximately 57.5: 18,920,000/328,500 = 57.5 stock/flow ratio. The world stock (stock) of zinc is 250 million tons and 13.8 million tons are produced annually (flow). The 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 in bitcoin — is halved. Bitcoin halving takes place every four years. In 2020, for example, the reward a bitcoin miner received for mining a block of bitcoin was halved from 12.5 btc to 6.25 btc per new block. The next halving will take place in 2024, when the reward will be reduced to 3,125 btc. Those who believe in the stock-flow model point out that shortly after each halving, the price of bitcoin hits a new all-time high. For example, after the 2016 halving, the price of bitcoin rose from $500 to $1,000 to $20,000. After the halving in 2020, the price dropped from $9,000 to about $30,000. The next halving event is expected to occur in 2024, at which time global bitcoin production is expected to decline by 50%, making bitcoin a much “harder” asset under the stock-flow model. When the halving happens in 2024, bitcoin’s supply flow would be (current supply) 18,920,000 + (2 x 328,500) (two years of production) = 19,577,000 328,500 / 2 = 164,250 (half production after halving) 19,577 .000 / 164,250 = 119.19 This means that in two years’ time, bitcoin will become more than twice as “hard” as it is now, and the stock/flow ratio will easily surpass that of gold. Those who thought the stock-flow model had a positive financial relationship to the halving events would argue that the 2024 bitcoin halving could take the cryptocurrency to a new record high. Bitcoin’s slowdown doesn’t mean the model is wrong

Who is Jack Mallers?

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

Hit enjoyed tremendous success in the five years since its inception. El Salvador, which made bitcoin its official currency last year, uses the Strike app to enable merchants to send and accept bitcoin. Twitter’s tip jar — which allows more than 200 million Twitter users to use bitcoin as payment — uses Strike’s plugin to send “tips” in bitcoins.

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

In spite of the

bear market

Traders absolutely believe in bitcoin and have previously said they believe the price of bitcoin could hit six digits 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 are directly related to increasing scarcity – and that future price increases lie ahead.

What is stock flow?

The stock-to-flow ratio measures the amount of an asset that exists in the world and compares it to the number of units of the asset that are created each year.

The model was started by Plan B, a pseudonymous Twitter user with more than 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 forward-looking” for bitcoin valuation – PlanB explained stock-to-flow.

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

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

Although the stock flow model gained prominence during the last bull run, it has since received a lot of criticism during the recent bear market.

Critics say bitcoin is closer to the

Market capitalization

of gold, because their stock is comparable. While gold’s market cap is $11.7 billion, bitcoin’s is just $596 million, and its all-time high was $1.27 billion at its peak in 2021.

Moreover, given the current crypto winter, many have lost faith in the stock flow model. According to last year’s PlanB scammers, bitcoin should have hit $100,000 each in December 2021. Not only did it never reach that, but it ended December with a 17% drop, ending 2021 at around $47,700.

after that, bitcoin fell further as the price of cryptocurrencies has fallen since the stock market slump in 2022. Bitcoin’s price is currently hovering around $30,000, with little sign that it will recover anytime soon.

Marcel Burger, the CIO of AMDAX Asset Management, told Insider about his issues with the model. “The stock-flow model was introduced as a model to predict the future price of bitcoin,” Burger said. “Because the model has been fitted to a linear regression, but does not meet the assumptions required to do so, this model cannot provide reliable results.”

While 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 increase in price. As long as the demand remains the same, but the supply decreases, I expect prices to rise,” says Burger.

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

PlanB clearly agreed that the model was never intended to map daily bitcoin price movements, but rather to provide guidance on potential bitcoin price over the long term.

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

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

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

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