Explanation
Applied to bitcoin it produces a rising line after every halving. The model only looks at supply and ignores demand; it clearly missed price behaviour after 2021.
The reasoning
The model divides the existing stock by annual new production. For gold that yields a high number, which according to its author explains scarcity and therefore value. Applied to bitcoin, that number jumps after each halving, after which the model predicts a much higher price.
Why it is contested
The criticism is fundamental: the model looks only at supply and completely ignores demand. Its price forecasts for 2021-2022 did not materialise, and statisticians pointed to spurious correlation caused by the upward trend in both series. As a lens to understand scarcity it is useful; as a price forecast it is not.
Key takeaways
- Supply only, no demand.
- The 2021-2022 forecasts failed.
- Use it as a frame, not a price target.