Understanding Bitcoin's Stock-to-Flow Ratio
This model compares Bitcoin to commodities like gold, silver, or platinum—known as "store-of-value" assets due to their scarcity and ability to retain long-term value. Like these commodities, Bitcoin is inherently scarce. It’s the first digitally scarce asset, with a fixed supply of 21 million coins. Mining the remaining 3 million Bitcoins requires substantial computational power and electricity, ensuring a consistently low supply rate.
The stock-to-flow (S2F) ratio evaluates:
- Stock: Total existing supply of the asset.
- Flow: Annual production (newly mined/released units).
For store-of-value assets, a high S2F ratio indicates most supply is held (not industrially consumed), increasing scarcity and monetary value.
Interpreting the Stock-to-Flow Chart
The chart overlays Bitcoin’s price with its S2F trendline. Historical data shows Bitcoin’s price closely tracking its S2F ratio, suggesting future prices can be projected using Bitcoin’s predetermined mining schedule.
Key features:
- Halving Events: Colored dots on the price line show days until the next Bitcoin halving (occurring every ~4 years), where mining rewards drop by 50%. This reduces new supply, increasing scarcity and—theoretically—price.
- 365-Day Moving Average: The S2F line smooths volatility caused by halvings.
- Divergence Chart: The bottom section highlights price deviations from the S2F line (green/red to show over/undervaluation).
Bitcoin Price Predictions Using S2F
The S2F model forecasts Bitcoin’s price based on supply dynamics:
- December 31, 2022: $78,280
- December 31, 2023: $81,956
- December 31, 2024: $306,984
These projections assume scarcity (S2F ratio) remains the primary price driver.
FAQ Section
Q: How accurate is the stock-to-flow model?
A: It has historically aligned with Bitcoin’s price trends, but external factors (e.g., regulations, adoption) can cause deviations.
Q: Why does the S2F ratio matter for Bitcoin?
A: Scarcity drives value. Bitcoin’s predictable supply reduction (halvings) mimics gold’s scarcity, reinforcing its store-of-value narrative.
Q: What are limitations of the S2F model?
A: It doesn’t account for demand shifts, macroeconomic events, or technological developments.
Additional Resources
👉 Explore Bitcoin’s Logarithmic Growth Curve for alternative price forecasts.
For deeper insights, read Plan B’s foundational article: Modeling Bitcoin’s Value with Scarcity.
Created by Plan B (January 2019).
Disclaimer: This content is not financial advice. Review our Disclaimer for details.
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