On Tuesday, Vitalik Buterin, the co-founder of Ethereum, spoke out against overly simple financial models for crypto markets, citing the stock-to-flow paradigm as a “damaging” example.
Buterin commented on Twitter that the stock-to-flow model was not looking well and that he couldn’t help but criticize unsophisticated financial concepts.
- “I think financial models that give people a false sense of certainty and predestination that number-will-go-up are harmful and deserve all the mockery they get,” he said.
Stock-to-flow is a model employed by some bitcoin (BTC) traders to estimate the price of the cryptocurrency that was previously used to forecast the price of natural commodities such as gold. Because these are limited resources, the amount that can be produced decreases over time, increasing the stock-to-flow ratio.
The ratio is calculated by dividing the quantity of bitcoin accessible on the market by the amount mined annually. This is then used to draw a line on a price chart (see the red line below) that represents projected future pricing.
