SLP171 PlanB & Saifedean Ammous – Bitcoin S2FX, S2F, and Evolution From Collectible to Financial Asset

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PlanB (pseudonymous Bitcoin quant) & Saifedean (Bitcoin economist) rejoin me to talk about PlanB’s latest work on S2FX, and some of the debates being had on S2F modelling as well as addressing some of the criticism. We will also talk about Bitcoin as it goes through phase transitions, and the implications on the Bitcoin industry, and the rest of society. 

This event will be on May 5th 9pm Sydney time, 1pm CEST, 7am Eastern time. It will be broadcast on YouTube Live at the link below, and on my twitter periscope @stephanlivera.

PlanB Links:

Saifedean Links:

Prior episodes:

Relevant episodes:

Sponsor links:

Stephan Livera links:

Podcast Transcript:

Stephan Livera:

Now in terms of introducing my guests now, plan B first appeared on the show in episode 67. He is a pseudonymous Bitcoin quant and also an investor in his day job. So he offers some really incredible analysis and really set the Bitcoin world alive as well as the finance Twitter world as well. And so he’s, he’s rejoining us today and my other guest is Saifedean, the author of the Bitcoin Standard. He’s an economist and he also was actually the first guest on my show and he is also running saifedean.com, which is his Academy to teach how to you learn about Austrian economics. So I’m just going to bring in the guests now. So welcome Plan B and Saifedean.

Saifedean Ammous:

Thank you for having us Stephan.

Plan B:

Thank you for having me on, Stephan.

Stephan Livera:

Excellent. So look, Plan B, let’s start with you. You’ve done some awesome new work with the stock to flow cross asset model. Can you tell us a little bit about why you did this and what’s going into that?

Plan B:

Yeah, sure. The S2FX model, it was long standing wish of me to integrate the two formulas that I had one formula for the time series Bitcoin model and one formula for the gold and silver. So the cross asset model into one formula, it was nagging that it was two formulas. So I always wanted to integrate that. And it’s funny that Raoul Pal from real vision he read my article well almost immediately after it was published and he wrote an article on Bitcoin himself much earlier than that. I think it was 2015 but he recognized right away he said, Whoa, you not only solve this for Bitcoin evaluation, but also for gold and silver. And back then, I didn’t really understand him because yeah, they were two separate models and, it is right now that I merged them into one that I understand what the Raoul really meant back then.

Plan B:

So that’s one reason. And the other reason was I wanted to introduce a new way of thinking a new perspective on the same data. So I’m not using any new new data, just the one from the earlier model, but it, the whole discussion went into one perspective and that’s the perspective of time series co-integration r squared, the drunk and the dog, you know, that narrative and it brought a lot of quants into the space, right? There’s hundreds of quants now, working on this. And that’s really cool. On the other hand, it’s a very specialized, very technical way of looking at Bitcoin and and while we’ll talk about it in a minute, but this new model offers another way of looking at the same data. Looking at it in phases and clusters. So yeah, I really liked that. And the hope is that this will activated next to the quants also. Yeah. Other brains. We need, more brains into space brains like military thinkers, geopolitical strategic thinkers. We really need those. So yeah, those are the two reasons.

Stephan Livera:

Fantastic. And Saifedean. Let’s go to you, I want to hear a little bit from you around this concept of transitioning, right? So you know, there are different conceptions of money. We have said the chartalist view, right? The government, the king, the God that sets the money. We have, let’s say the David Graeber view, which, you know, we might disagree with, that money started as debt and then we have the Mengerian story, right? It’s the most saleable good and it’s spontaneous. And then perhaps we might, a slight amendment or continuation of that story is the Nick Szabo shelling out story of it started as proto-money, as medium of wealth transfer, not necessarily small value transfer. So can you give us some of your views on that and how how money can evolve through those stages?

Saifedean Ammous:

Yeah, I think it’s I think Plan B’s work is absolutely fascinating in this regard. Putting a quantative number on this is something.That I would have thought initially when I first heard about it, I was extremely skeptical and I thought, you know, it’s just a bunch of nerds trying to put numbers on economics and we all know economics can’t have constants because there are no constants in human action, but it’s, I have to eat my words and just look at it because the numbers speak for themselves. And you know, the regressions happen to have extremely strong explanatory power. And I think it’s extremely, it would be extremely disingenuous to just dismiss this when we see all these extremely high correlation factors. And when we can tell very clearly how the causality works, because we know that the stock to flow for Bitcoin was laid out before Bitcoin was operational. So we knew that this was going to be the Bitcoin supply according to the plan.

Saifedean Ammous:

According to the schedule back in 2008. This was the information and then the price since then has basically tracked what the stock to flow does with extreme precision. It might not seem very precise if you look at it over the last year that we’ve gone from say three to 13,000 and back and forth. That doesn’t sound very precise because you know, you’re tripling in value and still the model still holds. But when you look at it over the the entire period of 10, 12 years, this is, you know, the move from 3000 to 13,000, it’s still it’s still a tiny little move compared to where we were, which is $0.003. And to where we going, which according to Plan B is probably a hundred trillion market cap. So, yeah it’s astonishing to think of it this way and this new stuff on the cross assets is quite fascinating because it suggests something that I had intuitively also thought about but had not thought of quantitatively as well.

Saifedean Ammous:

And that is the idea that at any given stock to flow ratio, Bitcoin becomes a different kind of good. And that’s just fascinating. So some people would have some people that have said, Bitcoin is a Veblen good in that as the price of Bitcoin goes up, people want to buy more of it. And while I think that is correct, that yes, as Bitcoin goes up, people want to buy more. I don’t think it’s accurate to call it a Veblen good. Because I think the definition of Veblen good is that it is that the quantity demanded increases as the price increases. But I think you know, from the Austrian perspective, they don’t like to think of anything as being a veblen good. Everything works according to the law of demand. But what happens as the price of a good increases is that the kind of good changes.

Saifedean Ammous:

So the common example is that for instance, people pay for a Gucci bag or for a Louis Vuitton bag they pay because they pay more when it’s more expensive because they want the status symbol. They want the you know, you’re not buying the bag because you need a $10,000 bag. You’re buying the bag cause you want people to know that you can afford a $10,000 bag. So if they discount it and if they put it on sale for $500 or $100, then that defeats the point. Then people think that, okay, well that’s a nice bag, but you might have gotten it for a hundred. So the point is that as the price of the bag increases, then the bag is a different good. And this is not it might not be very easy to understand this in the case of the bag because even at $10,000, yes, there’s a lot of people who would want it as a status good.

Saifedean Ammous:

Although it’s likely still to be a smaller demand than if the price was low. But in the case of Bitcoin it’s very clear because what you’re looking for in the money is liquidity. And as the size of Bitcoin increases, the liquidity of Bitcoin increases as well. And so that becomes a far better money and more liquid money. And so it seems that this is what this equation is capturing. As the stock to flow increases, Bitcoin becomes a different kind of monetary good. And it’s and you know, as the liquidity increases, the demand for it increases because if you had Bitcoin market cap of a million dollars, there’s very little demand for putting money in a global network that is totally worth a million dollars. So you’ve got a million dollars distributed all over the world that you can trade with. When it’s a billion that’s a much bigger liquidity pool that you can trade with so that you’re more likely to put money into it. And at the trillion is going to be an even a bigger liquid market. So it’s still a more advanced or it’s a good that it’s going to attract more demand. So I find this extremely fascinating.

Stephan Livera:

Yeah, I think so as well. And I guess to summarize, I guess it’s sort of like traditionally we would, when we talk about the law of diminishing returns, we’re talking about the same good. And the more you get of it, the less you should want of it. But in this case we’re saying we’re distinguishing Bitcoin because we’re saying it’s actually one of those things where the bigger that network is, the more

Stephan Livera:

Liquidity there is, the better it is as a money. So let’s bring it back to you, plan B. Let’s talk about your phase transition concept. So let’s just pull this up on the screen and do you want to just talk to us a little bit about phase transitions Plan B?

Plan B:

Yeah. So the first example is water and those who have known, who’ve had that at school know it, but water can exist in different phases, can be a liquid or solid like the ice in your cocktail. It can be liquid, it can be a gas and it can be ionised as well. So it’s all water, but it’s totally different things. Totally different properties. And as a matter of fact, if you go to the second example of the US dollar you also see that in finance, cause the US dollar, we always talk about you as dollar, but those the dollar hasn’t been the same with the same properties the last 200 years. So first it was a very defined quantity of silver and thus gold. So, so the gold dollar phase, if you will.

Plan B:

But that ended because gold, well it’s heavy. It’s clunky and paper is much, much easier in portability terms and divisibility terms. So it changed to to a paper, a dollar, but that could always be transferred to gold. So you could always get your goal with the with the dollar. And it also had that written on the note. So that’s okay. But then in 1971 Nixon got the dollar off gold. The gold standard was gone. So the dollar was basically backed by nothing. And we call it dollar and it was gold when it was transferable in gold and when it was backed by nothing. But if you do statistical analysis on it’s almost impossible cause those are really different things.

Plan B:

And then you can see it in Bitcoin, the third example as well because Nic Carter and Hasu, they have this narrative study they did. They already did it in 2018 where the narrative of Bitcoin changes over time. And it looks very gradual. But I guess it’s less gradual than it looks, but it goes from a proof of concept thing, you know, a white paper that was actually running on software and just looking, trying it out, proof of concept. And then it went into the payments phase where and it was a very distinct transition there as well. Cause there was a period, I think it was April, 2011 when Bitcoin got to the parity, so it was worth 1 Bitcoin was worth $1. And that changed the narrative a little bit.

Plan B:

People start thinking of bitcoin not in terms of a white paper and some proof of concept software. But in terms of the payment system that they can actually use it for paying small things like cup of coffee or micropayments was the talk of town at the time. And then it went really fast. So the price shot up and, even above in 2013, above a thousand dollars towards the price of an ounce of gold, which was 1250 at the time. So the whole narrative of digital gold, which was already there from the beginning right there, the E-gold story, that Szabo wrote, but it really catched on and so the E-gold could be looked upon as the next phase. And right now what we’re seeing after we crossed 1,000 for good.

Plan B:

And and we have futures markets, professional futures markets to see me in Chicago and New York, Bakkt on the ICE system that all the futures are on. We might be talking and you see that in the chart as well about a financial assets. So in a way, Bitcoin, while we call it Bitcoin all the time it transitioned from a concept, a proof of concept into a financial asset. And that’s very interesting. And that got me thinking about a better narrative and also a better a mathematical model.

Stephan Livera:

Okay. Great. And so we’ve got some of the concepts here that you spell out. So we have proof of concept moving into payments, into E-gold, into financial assets and so on that, do we have any evidence for these phases or do we just we have to try to ascribe certain, what we believe it is?

Plan B:

Yeah, I think the study that Nic Carter did, was was not very quantitative. Right. It was based on narratives and, and a bit subjective if you will. ButI recognized the phases as narratives that were in the news and in my head at the time. So yeah, I don’t know if they’re really there and that’s why I wanted to quantify it cause that’s when, you know, are there really phases like that and that, yeah, that was a wish I had for a long time. So I think that’s where it gets real for me as a quant.

Stephan Livera:

Yup. Yup. And Saifedean. And I think a good question for you at this stage would be around the concept of demonetization, right? And I think recently you commented as well that a silver is not coming back. Can you tell us why that?

Saifedean Ammous:

Yeah. I think you know, I’ve made a name for myself in the Bitcoin circles as being the shitcoin hater and I’m now moving this to the analog space as well, by going after silver bugs and continuously reminding them that what they’re after or what their beloved monetary metal is not a monetary metal. Similar I think as an industrial metal. It’s like copper. It’s like iron. There was a time in which Iron was used as money. And then there was a time in which copper was used as money, but they were demonetized, iron first and then copper. And I think silver has followed and you know, if we look historically, we see that the price of silver to gold historically used to be much higher. Silver used to be worth much more. So about 200 years ago, it wasn’t around 14, 15 to one, so 14 ounces of silver for one ounce of gold.

Saifedean Ammous:

Then the turning point, and before that it was much higher as well. But around 1870 is when silver started to crash in terms of price. That’s when I think the turning point was in the Franco-Prussian war in 1870 when Germany asked for its identity in gold and then switched to the gold standard. So when Germany switched to the gold standard, that was really the pivotal moment because before that most countries most countries used both and some countries were on silver standard, some country were on a gold standard, so the world was largely bimetallic. But you know, Britain, Switzerland, Holland, and some of the main economic powers were already on golden. Then when Germany switched as well, then that just made it that, that really strengthened the network effects. And from then on, the price of silver has just been crashing because you know there was no more good reason to hold on to silver.

Saifedean Ammous:

Of course I should add, it’s not just the Franco-Prussian war. It was more importantly the fact that with the development of modern banking and bank notes and bills and checks and letters of credit and all of these financial instruments less and less of the transactions were taking place with physical gold or physical silver. And so therefore you know, the silvers Raison d’être on that, which was that it was useful for doing small transactions disappeared. So then the interesting thing is that after that happens we see that there is a change in the way in which silver is acting on the market and that people no longer are using it primarily as a monetary metal or a lot of people are using it as a monetary metal because they still think of it as a monetary metal, but it’s functioning extremely badly for them as a monetary metal.

Saifedean Ammous:

And the value of the silver holdings continues to decline in real terms while the industrial uses of silver continue to expand in real terms because of the declining price of silver or relatively declining price of silver. So we see that what ends up happening then is that because people aren’t using it as money anymore, more and more of the production is being put into industrial uses. And then when it gets put into industrial uses, we’re talking about the stock declining. And so that effectively means that the stock to flow ratio will decline as well. So you know, historically it used to be that the stock to flow ratio for silver was around 20 or 30, but I think it’s it’s probably more accurate to see it than that it’s somewhere around three or five these days. It’s continued to decline because more and more of the stock keeps getting eaten into industrial uses.

Saifedean Ammous:

And then the flow continues to increase every year because you know, we get better at finding things. So the stock to flow continues to decline. And we see how it silver has really gone through this phase transition the opposite direction from Bitcoin where it was being used as money. But now it’s largely an industrial method. And we see the price of gold, the silver to gold ratio 1870, as I said it was about 15. Now it’s around 100 or 120. It just continues to go up. And you know, no matter how far the price of silver crashes, we still find people who think of it as money and they still think that you know, if it crashes more, that just means it’s going to rise more. But I don’t see that happening because even if we were to convince people around the world to start buying silver, even if we had billions of people started putting their money into silver, that’s not going to work and the price is going to go up.

Saifedean Ammous:

But silver miners are just going to produce more and they’re going to crash the price. And we’ve seen this happen with silver a couple of years ago, well about 10 years ago, and there was a big run up in the price and it reached 40 or $50, but then came crashing back down again. We saw it in 1980 as well. You can raise the price of silver by cornering the market as the Hunt brothers did, but because it has a low stock the floor ratio, it’s always going to be brought crashing down again.

Stephan Livera:

Yup. Yeah. And I think that’s fundamentally the lesson that we have to learn from that. So Plan B, perhaps you should let’s get you to take us through the rest of the model. So if you could just take us through the clusters and some of your thinking around that and what the eventual predictions of the model are.

Plan B:

Yes. So if we’re thinking in phase transitions and in phases and we look at the data, the chart you show now, you know, it’s just the stock to flow index on the X axis and

Plan B:

The market value of Bitcoin on the Y axis. It’s about 10 years of monthly data points. So a little over a hundred data points, but if you just look at it, no models, no statistics, nothing. Just look at the data. You see clusters, you see well top right, big cluster we’re in right now in the middle around stock to flow 10. You see a big cluster with some dots before that. And and between one and three, you see, well. You could, yeah. Arguably you could say that’s one cluster or you could say it’s two clusters. I always had this feeling in all the statistics I did on the model that we, of course, we didn’t have a formal halving before 2012 but it sure felt and looked like a halving thing that we have there. And that’s the 2011 jump in price.

Plan B:

That we see there. So I tend to look at it as two clusters. But well that’s arbitrary point is you can see clusters there. So that could underline this phase story and yeah, well, the next logical step down is to quantify the clusters. So I added, a genetic algorithm but it’s unimportant, you can do it with a lot of algorithms. The cluster algorithms, those are looking for the centers of the clusters. So you just input I’m looking for two or three or four clusters. You also have algorithms that find the closest for you, but I just inputted four, and then it looks, it looks for the absolute centroid of the cluster. So there, where the most dots are, it’s not an average it’s median. It’sthere where the clusters are dense.

Plan B:

So in time-series terms, if you think about the last four years, the price has been hovering around 700, 7,000 for four years, basically. So yeah. Well, there you have it. The colored dots are the exact four clusters that the algorithm finds and yeah, it’s maybe if you go up a little bit. So the clusters go they are around stock to flow 1.3, say 1 about about 3, 10, and 25 stock to flow of 1, 3, 10 and 25. And the market values that are associated with it are also from a different order of magnitude. So the first cluster, the total Bitcoin market was $1 million, so really, really small and everybody could buy up the whole market if you want. And the second cluster is 58 million, 3rd cluster is 5.6 billion, totally different league and the cluster we’re in.

Plan B:

right now, of course it’s a hundred and plus. So 114 billion. 100 plus billion dollars which is small but not very small too. It’s like a large cap at the S&P 500. Right? A big bank, like, I don’t know, Merrill Lynch or something. So those are the the clusters. And I think it’s a better way of looking at this data than looking at the time series. Cause if we go up a little bit to the chart again. Sorry about that. It’s how I see it is this is monthly data, but you could look at, and others did that at weekly data or, or daily data even. But it would all only make the doc, the blops, the blue data blobs thicker. It wouldn’t move the center of the data block.

Plan B:

It wouldn’t move the cluster or the phase. So I thought, well the phase, the center of those data blobs, that’s the real signal. We should be focusing on and not all the noise that we add when we add more data. So yeah, going from those four clusters you can see it visually with your eye, they lie on a straight line. So the next step was to bring in gold and silver in the next chart, which was the step to make it a a real cross asset model, if you will. And then, well so, and then you have six data points. So the four Bitcoin data points, but I viewed those four points as different kinds of Bitcoin, right? Bitcoin in different four different phases. So actually four different assets. And then I add silver and gold and I fit a line, just an ordinary at least square regression line through it.

Plan B:

And well the R squared is amazing. It’s 99.7%, very high. Yeah, So now we have it one formula with multiple assets in it. And of course I know, right? It’s only six data points. I’d like to add diamonds and real estates and all the other well assets with a stock to flow higher than one because below one yeah, that wouldn’t help much oil, copper, et cetera. But there isn’t much there aren’t much assets or metals, if you will, that are really scarce. So yeah, basically this is it. This is the model.

Stephan Livera:

Fantastic. And so can you give us some insight around timing then? So because now time has actually been removed from this model, it’s purely looking just at stock to flow. So I guess do you have any thoughts around that, around whether that might mean like say the cycle of people are used to thinking of Bitcoin has four year cycles and so on. Do you still, does this graph and does this model essentially still convey that concept of a four year cycle or do you think that actually changes now?

Plan B:

Well, there is a link. You know, statistically the time is out right. There’s no time in the model, no time in the formula. So we can all do, we’re not, we’re not doing time series analysis here. We cannot do coin integration stuff. We cannot do well other regression stuff or moving average stuff. It’s a cross asset model. It’s yeah, it’s a model that that is totally different from the time series world. Yeah. So I think that’s the important part. And I think that’s how we should look at it.

Stephan Livera:

Yup. And I guess we should just kind of put the headline projection as well. So as you’re saying, the estimated next, you know, market value is here, $288,000, given 19 million Bitcoins across the years, 2020 to 2024, which is that era or epoch if you will, reward epoch. So I suppose the other question then is do you have a conception here of whether the model, this model breaks down at some point? As you’ve mentioned previously, the stock to flow model potentially would break down in the late 2020’s. Do you have any similar idea with this one?

Plan B:

Yeah, yeah. Let me say three things. So the numbers that you’re seeing right now to 5.5 trillion and the $288K yeah, those are really big numbers right there. Five times the earlier numbers and they’re hard to believe in today’s world. And we should, we should look upon them as a order of magnitude prediction. So a forecast, the whole model is order of magnitude basically. And that’s what I’m interested in. It’s not like, you know, you see the tweets that today to the stock to flow model value is almost the same as the actual Bitcoin price. And to me that’s actually pure coincidence and it’s not what the model is about. It’s nice. But the model is about orders of magnitude. So how would a stock to flow 56 asset be valued order of magnitude wise?

Plan B:

And that’s what we’re seeing here. So that’s one. The second thing is that and that relates to your earlier question as well. Of course, we know that the stock to flow of Bitcoin will only go up. Through the halvings. It will go up to 250, a hundred, 200, et cetera, et cetera. So we can associate it with the time frame that it. So the next time frame with a stock to flow 56, that will be 2020, that will be, I think it’s next week the Halving, May 12th to 2024. So yeah, you could relate the assets, although it’s not a time series model to the time epoch that this asset is in. like well gold, if you will. And that’s by the way a very interesting topic of further research and Saife and I already looked upon that, but data is very fuzzy and it’s difficult. It takes time. How is gold and silver historically going through this stock to flow value line and especially the things that Saifedean said about silver losing stock? So, you know, going down in the line, those are very, very interesting things of course. Yeah.

Stephan Livera:

Sure. And the other question that might come up is something like lost coins, right? How many coins have been lost? Do we estimate that? Do we account for that in the model or do we just say, look, those coins exist in some way? I guess at first you might think, okay, they’re not part of the available supply. They’re not on the exchanges. So no one can sell them. But Saifedean, did you have any thoughts around that and also the concept around a Satoshi’s schedule if you wanted to expand on that as well?

Saifedean Ammous:

Yeah, I mean, I think the lost coins is interesting philosophically maybe and in a police investigation kind of way of trying to find out what has happened, but mathematically and statistically including them or excluding them from the analysis, doesn’t seem to make much of a difference. So it’s a pretty moot point. But yeah, on Satoshi’s schedule. This is something else that I found really interesting, which is Iasked plan B if he would run the regression using the stock to flow variable as if the schedule of Bitcoin had been as if the block generation for Bitcoin had happened exactly every 10 minutes as per the schedule put in by Satoshi. So the way that it worked, the way that satoshi put in the schedule for Bitcoin supply, as we know, is every 10 minutes a new block for the first 210,000 blocks, it’s 50 Bitcoins per block.

Saifedean Ammous:

And then for the next 210,000, it’s 25 and it keeps dropping by half. So I thought it’s you know, the interesting thing would be to use that schedule, which is very similar to the actual stock to flow with the variation in time. It’ll change only slightly, but I thought it would be interesting to use this and to see the correlation with it because statistically this is clearly without a shadow of a doubt an exogenous variable as they say in statistics. And I think this is extremely important. We can get lost and spend a lot of time talking about the you know the mathematical specification and doing all kinds of tests for the way the statistical relationship is set up. But there really is ultimately no replacement for thinking about things and just, you know, having a solid theoretical reasoning and understanding for why things work.

Saifedean Ammous:

And in statistics you know, the problem of reverse causality and the problem of correlation versus causation is always one that is present and it’s something that can never really be resolved mathematically. I think this is something that good statisticians will admit, which is we can use all of these tests. We can look at all kinds of different statistical indicators to try and establish a relationship, but we’ll never be able to mathematically determine and establish causality. You cannot do that. I mean you cannot establish and prove it. I think my favorite example is from, if you imagine if you buy a puppy and there’s a construction site next to your house and then you did a graph that plots the growth in the size of the building next to you and the size of the puppy, you’re going to find a very strong correlation.

Saifedean Ammous:

And you know, the two of them will grow for about a year or two in size and then they’ll stop growing once they reach their full adult size or the building reaches its full size. And so you could plot the two and you’ll find a very strong correlation. There’s absolutely nothing that you can do mathematically that will tell you whether it was the puppy that caused the building to grow. Or if it was the building that caused the puppy to grow. Or if it was just a random coincidence that the two of them happened to grow very similar to one another at similar rates. This is not something that can ever be established mathematically. You just need to use your brains and think, and this is not a very popular thing amongst economists these days, but among the Austrians, you know, we’re not afraid of thinking and we’re not embarrassed to admit that you have to use your brain.

Saifedean Ammous:

There’s no other way of figuring out how the relationship between puppies and buildings works. If you use your brain and you’ve lived on earth long enough, you know that there can be no correlation and there can be no relationship. It’s purely a correlation. And there’s a function of the fact that poppies grow and buildings go up. And there are billions of animals growing at all times and thousands of buildings being built at all time. And they will have to be a coincidence. So you have to think about things and think about the foundational premises for these analyses. And in the case of stock to flow. What I found really compelling about this example of the progression that I asked Plan B to run is that we know that the schedule of Bitcoin as it is presented in this equation as the independent variable we know it is without question an independent variable.

Saifedean Ammous:

We know it is exogenous to the model. In other words, we know that it is not the price that is driving the stock to flow, that there is absolutely no feedback mechanism from the price of the stock to flow, because the stock to flow according to the specification is something that was laid out in 2008. In 2008 people already knew this was going to be the stock to flow. And so the data for the independent variable in this equation was all available in 2008. We know that the stock to flow today is say, it’s going to be 50. If you’d run this equation in 2008, you would have gotten a stock to flow 50 today or next week because of the because this is what the schedule would look like. So for me to get this indicator, which is clearly exogenous, it’s clearly independent of the price and have the numbers laid out as they were back in 2008 and then let the price and then try and correlate that with the price which happened started to exist in 2010.

Saifedean Ammous:

So we’ve only had 10 years of price now. There’s absolutely no way that you can argue that it is the price that shaped the stock to flow. So there’s definitely no reverse causality. The stock to flow was there first and it’s very clear that the stock to flow will have a link with the price. You can’t deny that there’s a connection between the supply and the price. It’s impossible to argue that, you know, if today the supply of Bitcoin, instead of increasing at a rate of 4% per year, if it was increasing at 40% per year and, all of these let’s say 5 million new coins were being added to the supply this year, it’s impossible to say that that would be immaterial to the price. We can’t go from 4% to 40% supply growth and think that there’s no impact. So there’s definitely a connection and there’s definitely, we know definitely the direction of causality is from the stock to flow to the price.

Saifedean Ammous:

And yet when we run that regression, we get an even higher R squared than you do with the actual stock to flow. So it’s about 96.4 or 0.964 for the R squared, which is absolutely mind blowing. I mean, I think people can get lost in the mathematical details and miss the absolutely astonishing fact that we’ve got an exogenous variable, a clearly exogenous variable that is clearly independent of any reverse causality. And we’re predicting something that involves human action, that involves humans acting in buying and selling over a market that spans the entire world and includes millions of people and is worth now more than a hundred billion dollars. And we are able to get this much precision and this much accuracy in the model’s ability to forecast. It’s absolutely mind blowing. I’ve never seen anything like this.

Saifedean Ammous:

And I think, you know the punchline that people continue to miss is that, look at regression analysis. You will never find these kinds of numbers of an R squared that is this high for anything that is related to human action, for anything in which human beings are acting. So if you’ve got a machine that shoots, say that shoots balls, or if you got a gun that shoots bullets and you did a very precise scientific mechanical calculation of the weight and the speed and the energy and you predicted how far the bullet would go, and then you carried out that experiment over 10 years of shooting a bullet every day depending on the parameters. And then you plotted the the actual distances in which the bullet traveled versus the predicted distances. You’d get something similar to the R squared that we get with this model.

Saifedean Ammous:

It’s absolutely unheard of, I’ve never heard anybody mention it and I’ve asked but I’ve found nobody. It’s absolutely impossible to imagine something like this for something that involves human action for something that involves human beings acting. And generally when we’re building models of things that involve humans acting in them, we will have three, four different factors or many more factors. We have interaction variables where it’s a function of the two variables together. You multiply them together or something or the other and include all of these valuables and you still get an R squared of 0.5, 0.6, 0.7 if you’re lucky. And then that’s really pushing it. Well, when it comes to things that involve humans because human action is unpredictable, there are no constants to it and human beings are not simple machines where we can just predict what they do. And yet we see with this stock to flow with only one variable and it is clearly exogenous. Once we get an R squared around practically one, it’s, it’s absolutely mind blowing.

Stephan Livera:

Right? And the typical right. If we’re thinking from an Austrian perspective, we’re thinking, well, hold on, economic law, we must understand that praxeologically, you know, we cannot divine that merely from statistical

Stephan Livera:

examination of prior existing relations because those relationships may not hold into the future. And that’s kind of the fundamental way to think about that. I’m wondering Plan B, if you have any thoughts to add on this idea of the satoshi’s schedule R squared?

Plan B:

Yeah. It was a fun experiment that save asked me to do. Cause I in the beginning I didn’t understand what he wanted to do and I did it wrong also the first two times. But yeah, in the end, the original release schedule, the stock to flow schedule was what was known in 2008. And, projecting that to the, the prices is absolutely a very interesting idea. And I totally agree with the the not the notion that that a model should be used to guide your thinking. It should not be, you should not be married to the model and it’s, quants like me can get married to models very, very fast. So that’s actually the second reason, right? As I mentioned why I wanted to publish the cross asset model.

Plan B:

Cause I think it gives a far better way of, of thinking about and discussing about Bitcoin and its valuation and, and going forward then the very strict time series way that we’ve been talking about it before. So, yeah, it’s, it’s and the quote in my articles. So refers to that. So that was a quote of William Lawrence Bragg. He’s the guy who who got the Nobel prize for x-rays and stuff. So he says the important thing in science, it’s not so much to obtain new facts as to discover new ways of thinking about it. So I, yeah, I couldn’t agree more with with Braggs and Saifedean here.

Stephan Livera:

Excellent. another interesting question I think is around inflation adjustment of the U.S. Dollar value of Bitcoin, right? So people like to predict out, okay, I think it might be however many hundred thousand dollars in today’s terms or in the terms of that day. So nominal as at 2024. So do you have any thoughts on that idea whether these models should try to account for inflation or whether they should just literally be a nominal value model, Plan B?

Plan B:

Yeah. It’s an interesting question and I think it’s, especially if you go look historically to the data. So if we go back like we were planning to do a a hundred or 400 years back in time with gold, I do have 400 years of gold data, supply, stock, stock to flow, et cetera. But if you then relate it to price, of course you have to you have to adjust for inflation cause yeah, well the dollar, but you run into all kinds of problems doing that. So yeah, you know, that analysis that I do on 10 years of Bitcoin data, I ignore inflation. So I just plug in the data that you saw in the, in the cluster charts. And those are data straight from the exchanges. No inflation adjustment. I think we’re fine with the 10 years.

Plan B:

Of course the dollar declined a little bit in value in purchasing power. But I think we’re fine. And especially with the cross asset model, of course you’re, you’re looking at, yeah. Well one time, time is not a part of the model, so say it doesn’t matter. Still it would be very interesting to look at the historical path that gold or silver because it goes back like Saifedean explained it loses stock on, on, on that a model line. So, yeah, and I think, I think it’s interesting but also in the future, you know, if you, if you’re going to predict forecast Bitcoin or whatever price in the future, which we’re doing right now, right, with the $288K if we’re going to predict into the future, it’s also important to not to predict too far into the future.

Plan B:

Cause if we’re gonna, you know the well known argument against the model is it goes to infinity stock to flow, goes to infinity and the value goes to infinity and well, that’s why the model isn’t valueable. That’s a silly argument if I may say so, because you wouldn’t have used that argument in weather forecasting. For example, if we can forecast the weather one day tomorrow, the day after tomorrow, maybe the day after but forecasting one month or one year out, it’s absolute nonsense. And I think that’s true for a lot of models, also my model. So yeah, I wouldt be very, I would be very interested to see next phase, the stock to flow 56 phase and maybe the halving after that, the phase after that. And if we’re very, very lucky the halving after that, but to argue that when a stock to flow goes to infinity, which is in 2140, right?

Plan B:

It’s a hundred years from now. So yeah, to argue that the model is still valued then. I don’t think that’s true. And even if it were true, we had to adjust for inflation. And of course it measures market value in dollars. Right now the model, so on the Y axis, it’s dollars. And I really think, and that’s why I think the phase metaphor, if you will, is helpful as well. I really think that if we go to the next phase, the fifth phase, or the sixth phase to the phase after that the dollar will be severely impacted if not killed in action.

Saifedean Ammous:

Yeah. I think this I’ve heard you say this before and I’m not entirely sure I agree with it. I think the model doesn’t have to break down. In fact, it’s built so that it doesn’t break down because if you’re measuring it in dollar terms, you know, even before 2140, when the Bitcoin stock flow is at, say 400 or 800, then that’s almost that’s almost as high as being practically like infinity and, this could, you know, I don’t think you can just say that the model breaks down because it could just continue to fit the model as the price of, as the market cap of Bitcoin goes up to infinity in US dollar terms. You know, we may not hit infinity at exactly the time that the stock to flow hits infinity. But even if it happens a hundred years earlier, 2040, 20 years from now, it’s still going to be similar to infinity and the, you know, if we have a dollar breakdown, then that’s your model. So don’t write it off just yet.

Plan B:

I agree. I agree. I think the the model will not break down. The dollar will break down. In fact, that’s a certainty because, well no all fiat currencies, all 400 of them. All go, went down in the last years. There’s none that survive. And especially reserve currencies right the last a hundred years. And but there’s none that last for 200 years. So it will come to an end, the dollar. It’s not a thing that’s even debated that much. But yeah, so I agree. I think the model will outlive the dollar.

Stephan Livera:

That’s, I think that’s a great quotable moment. The model will outlive the dollar. And look while we’re speaking about models. It might be nice to compare it now to some other models. Historically, now there has been some chatter and some debate on Twitter. So let me just open the screenshare. So here you can see just one example. So Eric Wall, I know Plan B, you and Eric Wall have sort of gone back and forward and also Nick Emblow has also gone back and forward. And he’s talking about here, this rainbow chart model, right? And so there’s a little bit of, you know, a bit of playful banter back and forward and essentially Eric is trying to say no you know, maybe it’s too, you know, it’s just maybe it’s setting the wrong expectation and let’s just go back to the old rainbow chart. So do you have any thoughts on that Plan B?

Plan B:

Well, first of all, if we fight on Twitter like this you have to know, I do that sometimes with people. You have to know that we have a DM contact most of the time. So it’s really trolling and, all in good faith. And I like that. That’s, that’s part of crypto twitter, so all good. But of course I’m more interested in the more serious debate that I have having with the quants right now. You know, with Nick and Marcel and all the German guys. So yeah I don’t know I could, we could go through that tweet storm about the rainbow chart, but I would kill each and everyone. I think they’re all very funny, but not helpful if I may.

Plan B:

Yeah, show one thing. I mean, do you have to that chart the 2014? That’s the one, cause the whole rainbow chart. I love it. It’s you know, everybody loves rainbows, but it’s based on a 2014 power law model. It’s a time model. So instead it’s the same model stock to flow, but instead of stock to flow has time. The number of days since January, 2009 and it’s a model from trololo. It was a guy on Reddit I think.

Stephan Livera:

Bitcointalk, I think.

Plan B:

Oh yeah, you’re right. So it’s a 2014 model just after the big all time high in 2013. So you see the, the first part of the line that the somewhat thicker, brighter line, that’s the original model. And you see the red line that’s fitted through it. It fits very well, high R squared at everything.

Plan B:

But then it started to deviate in the future, right? Cause I think it was Tuur Demeester who put the more recent green dots in there, the more recent Bitcoin prices and it shows that the model, the red line, the original trololo rainbow line, if you will, is far too high over overestimates the prices and has to be adjusted downward. So if you look at all the rainbow charts and in fact all the time model charts that are out there at the moment, they have a log line. So the red line that is much lower than this 2014 line. And that’s what I, well that’s why I find time series model less useful than the stock to flow model and less useful. I mean, I don’t use it. I think its rubbish.

Saifedean Ammous:

Yeah, I’ll come to I tend to agree, I think there’s a lot of criticism of the stock to flow model, but a lot of people don’t seem to understand that their objections are actually just arguments for why this is even more amazing. So when you come up with an explanation for instance, people will say, well this is only measuring the price according to demand, but that’s ridiculous according to supply. But that’s ridiculous because supply and demand should be there. Well, the answer is, okay, well then go make a model with supply and demand and put in other factors and show us that you can get a higher explanatory power. That’s, really the, you know, you can come up with theoretical objections to why the model shouldn’t work, but you can’t come up with a better performing model. And that’s the tricky part.

Saifedean Ammous:

So it sounds shocking that yes, we’re just calculating it based on supply. It sounds shocking that, yeah it doesn’t take into account inflation, doesn’t take into account all kinds of different things. And yet here we are, the R-squared is still north of 95% and all of these other models can’t come anywhere near. So you can do a time model, you can put in all kinds of metrics for demand. And we’ve seen people try and build sophisticated models with the on chain metrics and off chain metrics and data from exchanges and all kinds of different things. Nothing comes close. So the fact that you can find the problems with the model and still not find anything better than it or still not find a way of improving its explanatory power should be giving people reason to pause and think rather than just, you know there’s this kind of petulant or, well, here you go. I found a reason of something that should be in the model, but it’s not there for your model’s wrong. I think that’s definitely the wrong way to approach it.

Stephan Livera:

Yep. One other idea as well. So maybe a skeptic might say, well, hold on. There’s all these different models now, right? So the first model that Plan B you put out was for $55,000 or prediction. That’s the what the model would say. And then a later model was saying, you know, 100,000 and that was there are different versions of the model. And you know, there are other ways you can cut the data. You could say, Oh look, I’m looking at the one day model or I’m looking at the 365 day model.

Stephan Livera:

Would that look like to an outsider, Oh, well, you guys are just covering your bases for this coming bull market. And it’s just, you know, it’s going up and you just got all these different places that you would just point back to and say, yeah, see, that was the model. What would you say to that Plan B?

Plan B:

Yeah. I can understand that critique. And especially if you’re not used to investing or using models like this or even making models like that, that’s even smaller a group. And I must imagine, you know I crossed the 95,000 followers today, but I bet you that 80% of the people yeah, is not used to using models every day or let alone making them. So I really understand that critique and it must look like, Oh, they’re changing. I think even Eric Wall mentions this as one of it’s changing. It keeps changing all the way, the formulas. But I think the main thing that I should say here is that we see science unfolding for our eyes here. It used to be letters, between scientists in the old days, right?

Plan B:

The famous letters for mathematicians that were found and later studied and discovered. But with the internet, it’s everything goes so fast and it’s going through Twitter of all media. It’s going through Twitter the fastest. So you’re seeing the debate, the highly scientific scientific debate unfolding for your eyes. And it must look, some things are better if you don’t know how they’re made. It’s like it’s the same for sausage and the law, but also with models. So you see it’s all there. Even the failures and I would say the main argument is it’s evolving. So yeah. You know, the first model it adjusted for lost Satoshi coins, just a very arbitrary way. You could do that far more advanced and that would give a slightly different model and you could even skip all the lost coins.

Plan B:

Just pretend it’s not very material impact and it would give a slightly different model. So yeah, and you could use daily data, weekly data, monthly, then it would give it slightly different model. So I think we’re seeing science unfolding for our eyes on Twitter. Keep that in mind. And the other thing is, it’s order of magnitude, right? It’s not a very precise thing. So it’s not like the bullet and the gun that Saifedean described. It’s not physics or chemistry even. It’s a social science. So it’s order of magnitude and even if it’s order of magnitude, right. I think the models are very, very helpful.

Saifedean Ammous:

Yeah, I think this is, yeah, this is the you know, the idea that first of all, you know, there are all these different ways of running the regression and yeah, you’ll get 50 or 100 or 150 or whatever for next year. But and that sounds like it’s a very wide range. Just like, as I was mentioning earlier, 3 to 13 for this year sounds like a very wide range. However, it’s a wide range when you’re looking at it from the perspective of this year. But if you’re looking at it from the perspective of Bitcoin over the last 10 years and the coming 10 years, it’s actually a very precise, very precise estimate. You know, between let’s say potentially 0.3 cents and let’s say $1 million Bitcoin in 10 years, for instance, if that were the case, then actually being able to pinpoint this year’s prices to be somewhere between 3 and 13 is astonishing accuracy.

Saifedean Ammous:

That’s I think, the thing that people miss in this model. So and I think the other aspect of it is that even if you even, even if the numbers don’t exactly pan out the margin of error around this is large enough that you’ll still very accurate, the model is still very precise when you look at it over the long over the long, over a long period of time. It’s a lot of variation only because you’re looking at it statically today, but if you’re looking at it over a 10, 20 year period, it’s still a very small amount of variation.

Stephan Livera:

Excellent points, both of you. Let’s talk a little bit about the future of Bitcoin modeling. Over time there have been models that have been tried and failed and it seems that so far stock to flow has survived basically. It’s this process. How do you see modeling evolving? Do you see, are there other ideas that are coming down the pipe, down the pipeline? And how do you sort of see that changing over time? Plan B?

Plan B:

Yeah. First of all, the quote, all models are wrong, some are useful. Is of course appropriate here. So yeah, there will come a day that stock to flow model, maybe it’s proven wrong. It’s all part of the game, part of science. So for like you said, it’s still standing. So yeah one of the very much discussed areas was co-integration of course. I think most of the action right now is there. Yeah I don’t think it’s maybe for now it’s very technical. Subject on the other hand you know, if there is co-integration you would have more confidence about it not being a spurious relation. And if there no co-integration, cause the whole debate right now is about, Hey, is it stock to flow a trending or a non trending stationary variable.

Plan B:

And if stock to flow is not going up, it’s only going up because of structural breaks, then there is no co- integration. Would that hurt the model? Well, yes and no. It doesn’t hurt the model, the model is still standing, but it would take some of the confidence that you get from a series being co-integrated away. On the other hand, an experiment like Saifedean did with the satoshi coins would also give confidence. And of course I chose the route of including other assets cross. So making a non time series model but across asset model, which gets rid of the whole co-integration problem altogether. It introduces other problems, the last data points of course, but, it, you know, so I think there is a lot of and there’s a totally other models as well that people look at Metcalfe law of adaption.

Plan B:

If you will, and number of addresses, the number of transactions and those models are, I looked on some of these models as well. Those are also very interesting. But that the, for example, the number of transactions model has the problem of batching if exchanges are so they all went batching transactions for the last couple of years. So that totally breaks the model. It takes the number of transactions down. So you have to look at UTXOs, maybe. And so there’s, yeah, there’s definitely more modeling going on, but to be honest, there’s an investor I’m only going with the stock to flow model right now, of course.

Stephan Livera:

And let’s talk a little bit about the implications of this modeling work, whether that is for Bitcoin market participants, as in if you’re a miner, you’re an investor or the broader world. Saifedean. Did you want to start on that, the implications of this model onto Bitcoin, Bitcoiners and the rest of the world?

Saifedean Ammous:

Honestly, I think I’m not sure how you’re going to like, how much you’re going to like this Stephan. But I think the, the most important application of this model for me personally is that it is probably the most serious challenge to Austrian economics I’ve ever seen. Like I’ve, after learning Austrian economics, after studying this, I became extremely skeptical of mathematical models. And I generally when I look into modeling, it ends up being an exercise of just finding out what mistakes people have made in order to get the results that they wanted to. And if you’re studying academic research, you look at you’re generally dealing with garbage statistics with an agenda of people trying to crowbar as many variables and try to use as much statistical techniques as they possibly can to try and arrive at the conclusions that they want to arrive at.

Saifedean Ammous:

And so I was extremely skeptical of the idea that you could find mathematical models that could predict human behavior. And I think, you know, when you read Austrian economics Human Action in particular, you know, means is, is very clear about the fact that can be no constants in human action. Individuals are acting and individuals are not reduceable to simple equations. There are too many complex factors that come into play in that you are not able to abstract from the complexity of human decision making and the human will and human action. You cannot abstract away from that into numerical equations. And you know, when you see things that involve human action, you can’t get, as I was saying earlier, this is something on which Mises and econometricians, would agree you don’t get an R squared that is high if it involves human actions.

Saifedean Ammous:

So if you’re measuring the R squared for the gun, you know, you’ll get something like 95% because there’s always going to be an error margin in the speed of the wind or whatever when you’re calculating how far the the bullet is going to run. But here we’ve got something that’s just a very simple variable which has clearly exogenous, which was determined by somebody in 2008 and we have billions of people all over the world, who every day wake up and make a decision about whether they’re going to buy Bitcoin, sell Bitcoin or not do anything about their Bitcoins, buy or sell. You know, 7 billion people every morning make that choice and as a result of those 7 billion choices, you get the Bitcoin price at the end of the day. And the fact that it is so well correlated to the number that was made before 2009 is absolutely mind blowing.

Saifedean Ammous:

I still can’t get over it then. I think it’s the most serious challenge to Mises’ Human Action is the idea that there can be no constants in human action, that you cannot produce human action with magical variables. Well, planB has done it. It’s amazing. It’s absolutely mind blowing. But we can find that equation based on a clearly fixed, exorbitant as variable and we can estimate the price of Bitcoin with astonishing accuracy. So I’m not going to say that it’s going to make me revise my view on Austrian economics.I’m not going to stop being an Austrian economist, but I think after a hundred years of Mises or more than a hundred years of Mises making these points, we finally have one example of something that emerges out of human actions that is a predictable, according to a constant, by an equation. So if this formula continues to hold over the next few years I mean, it’s the fact that it’s already held so far, it’s still astonishing, but if it continues to hold past one more halving, and another halving, it’s amazing. I just can’t stop thinking about it.

Stephan Livera:

Yeah, that’s we’ll have to see, right? And I might take a couple of questions out of the chat here. I’ve got one here for Plan B. So we’ve got the question here. I’m putting it up on screen now. The question is, what does Plan B think on BergercryptoAM’s analysis of co-integration for structural breaks? Any thoughts?

Plan B:

Yeah, that’s what I talked about earlier. So that’s the time series world, not the cross asset model. It’s the discussion about co-integration if it’s there and both Burgercrypto and Nick of course in earlier studies and Manuel Andersch from the Landesbank (?). We concluded there is co-integration. So if there is co-integration, it really adds confidence to the model that the relationship between stock to flow and price is not spurious. So it’s real. Now the state of the art top of the spear thing is structural breaks. So all the co-integration tests they say there’s going integration, but there is some tests that test for structural breaks in the datasets and of course the halvings, you know, to stop the flow doubling while twice now and in a week again could be seen as structural breaks.

Plan B:

And if you adjust for those structural breaks that, so if you use the tests that adjust for structural breaks, then the co-integration falls away. And Burgercrypto I think didn’t test yet for co-integration with structural breaks. But Nick Emblow did it took his computer by the way, two days of 24/7 running. It concluded if I think it was yesterday, so I’m not quite sure, but I think he concluded that there is, if you account for a structural breaks, there is no co-integration so that we would take some of the credibility of the model away point. That’s just how it is.

Plan B:

Maybe I should add, because even an early article and early tweets, I didn’t mention co-integration, but I mentioned that the Bitcoin price is above and below the stock to flow model value every single year. And in essence, that is what co-integration is about, right. So we might find a third group of tests that eventually agrees with co-integration again, so but the concept and the basic of co-integration is that the series keep together very tightly and that’s what you see in the series. So, yeah, I guess we have to do more tasks and but we also have to yeah, notice that this is the time series world with co-integration, very important, et cetera, et cetera. And, of course I’d like to broaden that space thinking I like to go to the next level to the cross asset world.

Stephan Livera:

Great. Okay. Thank you for that. And Saifedean. And I’ve got a question for you from the chat here as well. So the question here is please ask Saifedean what the implications are having a money with an expected increase in value better than any productive investment in terms of ROE return on investment, I guess.

Saifedean Ammous:

Well, I think this is fittingly enough for today’s episode. This is a phase question. So it depends on what phase are we talking about in this current phase, when Bitcoin is still less than 1% of the global money supply investing in Bitcoin, beating other possible investments is essentially I like to think of it here. You know, at this point, although Bitcoin is a savings technology as our great leader, Pierre Rochard likes to remind us.I’d say that at this point, Bitcoin is a little bit more of like a venture capital or angel investment in a startup. And it’s as if you’re investing in a little startup that’s going to, that’s angling for replacing central banks. So imagine, you know, just like Uber against the taxi commissions. Bitcoin is like a decentralized Uber for central banks and it started off being very tiny, but it has the potential put one day of a total addressable market that has all the money supply and the entire world kicking.

Saifedean Ammous:

You know, taking away all the market share from all the central banks. So now Bitcoin is like a growth stock. Now, Bitcoin it’s an investment with a very high potential return. Because you know you’re gambling, you’re betting on the fact that something that’s 1% of the global money supply is going to have a much bigger number. So at this point it is like an investment and it might, you know, for me the fact that Bitcoin is beating all other investments in my mind, the way that I interpret that is that the social value and the societal value, the value that society attaches on hard money at this point is enormously high and Bitcoin is addressing that market. And so the fact that Bitcoin beats other investments is essentially the, what the market is saying is that, you know, there are no better investments for the human race to be making right now than getting rid of central banks.

Saifedean Ammous:

And I think that makes a lot of sense. You know, the more people stop investing in other things and they start investing in this new startup that was going to displace central banking, the faster we can be done with central banking and get back to living like civilized human beings. So this is a high return investment because it has a massive return because when people are able to move to Bitcoin, they benefit enormously from it. So I think at this point you know, this is very good that Bitcoin beats other investments because we want to stop people from investing in other pointless things and invest in something that’s more important, which is, you know, putting central banks out of business. So I think that’s great. Now, once that’s accomplished and once central banks are out of business, it’s not going to be possible for Bitcoin to be beating others, to be beating all investments.

Saifedean Ammous:

Because assume the point which Bitcoin supply growth has stopped, Bitcoin will only rise in value to the extent that the production of other goods and services increases. In other words, once we have Bitcoin supply is fixed or the growth has dropped, the growth rate has dropped to be almost equivalent to zero. Then when, you know, the Bitcoin supply is not increasing, but our supply of apples and oranges and homes and cars and goods and services is increasing. And so over time, the price of Bitcoin in terms of those things rises. And so Bitcoin is increasing in value in real terms, but it can only increase in value in real terms if people are investing and making more apples and more oranges and more cars. So it’s basically you can’t beat the market by holding money. In a situation in which Bitcoin is the only money, you won’t be able to beat the market just by holding money.

Saifedean Ammous:

You, what you’ll achieve by holding money is the expected rate of return on the market or the real growth rate in production. But that has to happen because people are investing. And that’s going to happen because people who are investing. They’re going to be investing because they’re getting better returns. So eventually you’re going to get your money. So you know, your Bitcoins will buy you more apples next year than they will this year. But the apple farmer who engaged in production will not just benefit from the appreciation of their money, but also they’ll benefit from the fact that the profit that they’re making is higher. So you won’t be able to beat the investments for the long run. So enjoy these gains while you can.

Stephan Livera:

I think I agree very much with that answer. I’ve got one interesting question here for PlanB. The question is what does Plan B think phase five is? He keeps mentioning military thinkers. What is he envisaging?

Plan B:

Yeah. I have my ideas about phase five. Of course. You know it only making it an institutional grade asset, financial assets would be enough of a jump for me to justify the valuations. So it’s not even a state level investing or central bank starting to invest in, but just make it an institutional grade asset, which you this not now. Absolutely not. It’s, it’s, you know, hedge funds are investing in it. Gold investor, everybody with their own money, but banks and pension funds, well maybe some very liberal pension funds, but phase five, will be a totally different thing. And and think, and that’s why I mentioned strategic thinkers, military thinkers and geopolitical thinkers because it’s a global money and if the next phase is 5.5 trillion, it will be bigger than the

Plan B:

monetary base of the U.S. Dollar, which is 3 trillion. So it will have geopolitical consequences and it will I know the Department of Defense is writing papers about Bitcoin, you know how to attack it, how to follow it, how to whatever. So I think we’re sort of understaffed in Bitcoin with only developers, miners and now some very early investors and quants and economists. Some very liberal thinkers in those areas. We need more. And really, I mean, of course I know some of the geopolitical thinkers and military thinkers cause I invest in you know, the company that I worked for invested like a hundred billion dollars. So we talk to those people and they think differently. They map out a route to this 5th Phase.

Plan B:

They make multiple scenarios. They would put markers on the way and you could recognize, Hey, this is, you know, if you think about it before at market and make it a scenario, you could recognize those, those points on the way. And I really miss that thinking right now in Bitcoin and hope maybe this is the opportunity to call upon those brains to join this journey. Cause I think Bitcoin will be much bigger than the just an investment, just an asset. It will be money. So the thing that humans choose in all their trading in old air as our unit of account eventually. So it will be big.

Stephan Livera:

Excellent. so look, I think that’s probably a good spot to start. Winding this down just wondering if you had any closing thoughts for the listeners. Saifedean do you want to start?

Saifedean Ammous:

Well, somebody in the chat asked the question. I can’t think of anything, so I’m just going to answer that question. They’re asking me what I think about the future of gold and I’ll have to say that over the past few months and the, since I wrote my book, I’ve been leaning more forward thinking that gold is the new silver. I, you know, I go back and forth and I don’t think I’m not, my mind is not made up. I’m not sure what’s going to happen. And I’m highly, highly careful about writing off gold because that’s been done many times by many people before. And we you know, the world laughed at them eventually, but I think, you know the all of the previous contenders to gold were always designed by people want to replace gold because they wanted something more inflationary that they can control.

Saifedean Ammous:

And Bitcoin attacks gold in the, you know in its weak spot or in its strength, it attacks it really where it matters, which is at the stock to flow. So Bitcoin is not just another way for somebody to get rid of gold so that we can so that we can so that we can inflate and have inflationary money. Bitcoin is a way that gets, it is a replacement for gold that is less inflationary. And I think looking at how silver was demonetized and became more and more of an industrial method, it makes me think of a way in which this would happen with gold. And so I think if the you know, over the next 10, 20, 30 years, Bitcoin’s monetary premium continues to rise. So people hold more and more Bitcoin, the value of Bitcoin goes up, but the value of gold doesn’t go up significantly.

Saifedean Ammous:

The monetary premium around gold does not go up significantly. Then gold is declining in value in real terms, and it becomes more and more economical to be used in industrial applications. So people will start using more gold in electronics because it starts getting cheaper and cheaper. And once you start doing that, once you start in, once you start putting gold in these industrial uses, this is not exactly like consuming gold because you can always get it back out of the phone or out of the electronics. But it is similar because the cost of extracting it from those electronics can become higher and higher. So once gold becomes cheap enough that let’s say an ounce is $1,000 but you can put it in a phone and then if you want it to get that ounce out of phones, it would cost you something like $10,000 to get one ounce.

Saifedean Ammous:

That gold is practically gone out of the supply. And so we’re back to the situation which is back to similar situation with silver where the gold stock is now declining. And so the flow or the new annual production is becoming more significant compared to the stockpiles. So I can see this happening more and more as if inaudible continues as we have. And I think what’s I’d say kind of making me lean more toward thinking about this, is that you look at the world economy and all of the fireworks and all of the disasters and catastrophes happening, and gold still can’t get to a new all time high. And so, you know, it’s looking more and more likely that the limitations of gold, the fact that you can’t clear it internationally and the fact that the banks, central banks control it and own a lot of it are just limiting its ability to play its monetary role more and more. And I can see how with Bitcoin there, there’s less of a, there’s even less demand for people to be using gold. And I can see how it could switch toward becoming more and more of an industrial metal over time.

Stephan Livera:

Excellent. A Plan B as well. If you’ve got any closing thoughts and one last question for you would be? Would you, you’ve spoken about going dark? Is that something you’re still thinking about doing and when would you do that?

Plan B:

I’ll leave that for the end and I’ll first go with Saifedean and on the gold for a view, I think that view aligns with my view. But on a bigger scale, I think Bitcoin is going to suck out the monetary premium of everything that’s out there. So you see this black hole metaphor sometimes. But right now a lot of things are used by investors and normal people to store their wealth. And, you know, everything that cannot be printed by the government is good. So silver, gold,real estate there’s a lot of monetary premiums in real estate at the moment. A lot of apartments and houses that people don’t live in, but they did just hold it for investment, which is a waste of course for humanity.

Plan B:

So I think Bitcoin has a very important role to play as a monetary asset. The best monetary asset, the hardest money to sound is money without utility value. So it doesn’t destroy the utility value like real estate. And also gold and especially silver are doing right now. So that will be phase 6 and 7 stuff I guess. But yeah, I could see that happening. Well and, in light of that and what I said earlier about military thinking and Bitcoin being bigger than the monetary based in U.S. dollar, me going dark. Yeah. A lot of people think that that is serious option. So yeah, I it would kill a lot of community followers, social media asset if you will. But in the end if a lot of people think I go dark when the model breaks, when they shout at me for being wrong, that’s not the case.

Plan B:

I think I’ll stay down cause we need a different model and et cetera. I will go dark if the model is successful because if the model is successful it will not be a pretty picture. It would be nasty. It will maybe war. It will be yeah, people have Bitcoin. Some people don’t have Bitcoin. It will be, some countries have Bitcoins, others won’t have Bitcoins. It will be the USD dollar are losing its status. It will be geopolitical, it will be military. So either I play a role in there, which means I have to disappear from Twitter or it will be too dangerous for me to be there and I will go dark. So yeah, that is a serious option. That’s out on the flip right now.

Stephan Livera:

Well, yeah, thank you very much for that. And look, I guess I’ll give you a gentlemen a chance to tell the listeners where to find you. So Saifedean do you want to just start and I’ve put up on screen your website, so just tell, let’s tell the listeners where they can go to find you online or to get the book. The Bitcoin standard.

Saifedean Ammous:

Yeah, my website Saifedean.com it has links to the book. The book’s coming out to 20 languages now, the Bitcoin standard, so you can see all the languages and where to buy them from. You can also see some of my recent research as well as my online courses, which is now my full time job. Having left my university. I’m teaching Austrian economics and Bitcoin economics online. And you can sign up for my courses at any time because you download the videos and you get to see the lectures and the discussion sessions. We have a class right now that is in its last week. We finished next week, it will be the last week of, for my economics 12 class. But you can take it at any time. You can take the class at any time and I will always be having weekly discussion sessions throughout even after the course is done being taught live, I’ll still be having a weekly discussion session so you can do the lectures on your own pace and then come join a discussion session with me at any time if you have any questions.

Saifedean Ammous:

So yeah, you can find that on Saifedean.com. And you can also see you can also sign up for my mailing list to stay abreast of all of my new announcements. And you can see you can also sign up to buy my forthcoming book, the principles of economics textbook, which I’m writing based on my courses. You can buy an advance signed copy of the book now and get access to the draft of the book as it is being written.

Stephan Livera:

Fantastic. And Plan B I’ve got your Twitter profile up on screen. Do you want to just tell the listeners where they can find you and who you’re looking to hear from?

Plan B:

Yep. So I’m on Twitter. You showed the page right now it’s a Plan B @100trillionUSD. It’s also in the screen. And well there you, from there you can go to the medium articles, the three medium articles high road, and to the data that has been used in the analysis. It’s on GitHub. So yeah, maybe something new. I’ll be launching a website later this week that will have all the papers on there, but also all the podcasts, which is about 10 podcasts right now. So people will want to binge watch, binge listen planB podcasts. They can do it right there. Yes. So I’m very much looking forward to debate and to critiques on the model. Mind you, I’m looking for the scientific debate. So preferably with models, with analysis, with data, if you have some very strong logic preferably Austrian economic logic or, yeah, I would be very interested in hearing from you and I’ll repeat my call for geopolitical strategic and military thinkers to join the journey.

Stephan Livera:

Fantastic. Well, look, I think that’s going to do it. So thank you very much. Plan B and Saifedean and for joining me.

Saifedean Ammous:

Thank you. Bye. Bye. Excellent.

Stephan Livera:

So just if you enjoyed the show, make sure you subscribe to the YouTube channel and you can also get the podcast online at stephanlivera.com and I’ll put a transcript. And of course, this episode will be put onto the audio stream as well. For those listeners who want to just listen on the audio only. Otherwise that’s it. Thanks. And I’ll see you in the citadels.

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