Bitcoin

All three Bitcoin regression models show a consistent fit and generally agree with Plan B’s model. A positive correlation exists between the R-squared coefficient and larger input data-sets with more price history. Indeed the full history of Bitcoin very closely matches the model developed by Plan B with an R-squared of 0.899.

Plan Bs original model utilised monthly price data (first of each month) whereas this study considers the average daily close price data. Whilst the outcome is consistent, the pre-halving model using the set of daily Bitcoin data provides an R-squared value of only 0.6624, whilst the fit using monthly price data is 0.894. This highlights the importance of temporal distribution of input data which is shown to make statistically significant differences to the model fit.

At halving events there is a significant change to Bitcoin’s Stock-to-flow ratio which is not immediately followed by an equivalent shift in network valuation. Therefore one must be cautious when selecting data to avoid heavily weighting the analysis by data immediately after a halving event (thus model 2 considers Bitcoin at 50% mined not 50.1% mined which punishes the fit).

Nevertheless, given the full suite of price data for Bitcoin it is the author’s opinion that Bitcoin has an undeniable and quantifiable monetary premium and is indeed an appropriate baseline against which other models should be compared. This analysis provides yet another independent verification that a strong relationship exists between stock-to-flow and network valuation for Bitcoin.

Decred

Decred has shown a statistically significant relationship between Stock-to-Flow and market valuation with an R-squared value of 0.70 considering only the first 3.67 years of price data. It can be seen that this relationship is a comparable fit to Bitcoin’s using data up to the time of the first halving which has an R-squared of 0.66.

The overall fractal for Decred’s S2F relationship appears to oscillate around the mean regression line which appears smoother over time than Bitcoin or Litecoin likely a result of the smooth issuance curve and lack of severe halving event supply shocks.

The early tail (low S2F values) of the data plotted above speaks to the difference in market dynamics at the time when first price data first became available for each protocol. Despite high early inflation, Decred’s tail is consistent around a market value of $5Million until the S2F ratio approaches ~2.0 at which point valuation accelerates during the 2016–17 bull run. Bitcoin on the other hand experienced a far slower growth during the 2011–12 bull market with a smaller pool of participants. Early Bitcoin price data sources range from Laszlo’s 10,000 BTC pizza to early Mt Gox pricing leading to a lower relative value at similar S2F values.

It must therefore be noted that the gradient of the Decred relationship is heavily weighted by this tail end especially during the first 3–4 years of life. Decred has only existed through a single Bitcoin bull-bear cycle and thus has a comparatively limited data-set whilst Bitcoin has largely overcome this effect with its now 10+ years of price data and multiple market cycles.

In summary, Decred is showing signs of developing a strong and convincing monetary premium with respect to it’s scarcity measured by stock-to-flow ratio.

This model must be revised in the next 12–24 months as it is likely the regression fit will be improved dramatically if Decred experiences strong market performance over this time. Similarly, poor future performance will negatively influence the regression fit.

Litecoin

Litecoin, based on the results and sensitivity studies presented, does not seem to be developing what the author considers a convincing or competitive monetary premium. This is consistent with the original screening analysis and this study now justifies the position based on the low R-squared value. It is noted that the model fit is not improved by any significant magnitude through adjusting the resolution of data inputs.

It is the author’s opinion that Litecoin does not display a convincing relationship between stock-to-flow scarcity and market valuation.

R-Squared Development over time

To quantify the relative model fits and account for different timescales of data considered in the analysis, the R-squared coefficient has been calculated over a expanding data-set and then plotted against Stock-to-Flow.