The Bitcoin Stock-to-Flow Model (S2F) is a framework that uses scarcity as input to predict the Bitcoin price. The Bitcoin S2F model has gained immense popularity among investors as a tool to make informed decisions about investing in Bitcoin.
In this article, we will explore more about the S2F model, including how it works, how it can be used, and more.
What does stock-to-flow mean?
The stock-to-flow model is primarily a tool to measure the scarcity of an asset or commodity. In other words, the S2F model calculates the number of years it would take to achieve a set stock, provided the production continues at the same rate.
To calculate the S2F, we divide the total stock of the commodity or asset (stock) by its yearly production (flow). So, the higher the existing stock compared to the current production rate, the higher the stock-to-flow value will be, and the more valuable the asset or commodity will be.
The formula to calculate the stock-to-flow is:
Stock-to-flow = Stock / Flow
Here, Stock is the total stock of the resource, and Flow is the yearly production of that resource.
Let’s look at a simple example to understand the S2F model. Assume the total stock of silver is 450,000 tons and its annual production rate is 7,500 tons.
S2F for silver will be = 850,000/7,500 = 60
This implies that it would take 60 years of mining to double the total current stock of silver.
Historically, the stock-to-flow model has been applied to natural assets like silver, gold, and more, but now experts are applying it to digital assets as well.
What is the Bitcoin stock-to-flow model?
In 2019, a Twitter user by the name PlanB was the first to come up with Bitcoin’s stock-to-flow model. PlanB used the traditional stock-to-flow model to predict the future value of Bitcoin, and so far, the predictions have largely aligned with Bitcoin’s price movements.
Bitcoin’s stock-to-flow model suggests that the BTC’s value could gain significantly over time, a trend that has been previously seen with precious metals like gold. The Bitcoin S2F predictions get support from its capped limit of 21 million coins and BTC’s halving events.
Every four years, the number of BTC’s produced by miners gets reduced by half. For instance, the reward for miners was 50 BTC per block at the time of launch; it was reduced to 25 coins in 2012 and again to 12.5 coins in 2016. The current Bitcoin mining reward is 3.125 BTC per block.
Due to these events, Bitcoin’s stock-to-flow will continue to rise every four years up to the point when there is practically zero new supply. It implies that the rise in BTC’s price is driven entirely by demand.
In September 2019, the Bitcoin stock-to-flow was 27 with 18,000,000 in coins in circulation (stock) at a production rate of 657,000 BTC per annum (flow). After the halving event in 2020, the production rate (mined) dropped to 900 BTC in 24 hours, resulting in an increase in the stock-to-flow ratio to about 59.6.
After BTC’s 2024 halving event, the S2F increased to 113 with a total supply of approx. 20 million (Stock) and a production rate of 3.125 coins every 10 minutes (Flow).
It must be noted that the gold has more or less a constant stock-to-flow as it doesn’t have any halving event, but Bitcoin’s stock-to-flow will continue to increase until the supply reaches the capped limit.
Bitcoin price prediction (according to the S2F model)
Bitcoin’s price prediction based on the S2F model uses more than a decade of price data as input. The Bitcoin stock-to-flow model has given bullish price predictions in the past that have proven to be accurate.
As can be seen in the above Bitcoin S2F chart, the BTC price has consistently followed the S2F line with a few exceptions, mainly due to major bull or bear runs. Long-term investors and experts, however, do appreciate the model’s consistency.
Historically, the Bitcoin S2F model has predicted a substantial jump in price following the halving events, and these predictions have turned out to be accurate in the past. Even though the past performance is not indicative of future performance, the model’s consistency can’t be overlooked.
Following the next halving event, which will take place sometime in the first half of 2028, the S2F model predicts Bitcoin’s price to hit $1 million, or over a million dollars, by the end of 2028. Such predictions make crypto, especially Bitcoin, a good investment.
Though S2F predictions have been accurate, investors need to understand that these are just observations and speculative projections. However, a key takeaway from the Bitcoin stock-to-flow model is that it shows how scarcity can impact BTC’s price.
Bitcoin is the first asset in history with a fixed supply, and thus, its demand will completely drive its price. So, it won’t be wrong to say that as BTC’s adoption continues to rise exponentially, its price will also go up at the same pace.
Why is Bitcoin S2F useful for crypto investors?
Crypto investors can use the Bitcoin S2F model to efficiently manage their BTC investment. The Bitcoin S2F model provides investors with a framework for determining BTC’s price in accordance with macro trends. Though the model doesn’t consider short-term volatility, it does give investors another tool for informed strategic decision-making.
The following are the reasons why Bitcoin S2F is useful for crypto investors:
- Price trend: Investors can use the model to check the BTC price trend, and this, in turn, can help them with their investment decisions. Moreover, the Bitcoin S2F model also suggests future price patterns as it shows past price movement relative to scarcity.
- Risk management: The Bitcoin S2F model gives an estimate of BTC’s fair price in relation to scarcity. Investors can use this fair value to manage their investment risk in digital assets.
- Price movement post-halving: Investors can use the model to anticipate BTC’s price movement post-halving events. This, in turn, can help investors to make profits and manage their investment post-halving events.
- Strengthen portfolio confidence: At times of volatility, investors can turn to the S2F model to get a long-term outlook on their crypto investment. It will also help them in reducing emotional trading decisions.
Despite the uses, investors must know that the Bitcoin S2F model relies on historical data and assumes the past trends will continue in the future. Moreover, investors also need to understand that crypto markets are highly volatile and there are many factors that can impact the prices.
The bottom line
Undoubtedly, the Bitcoin stock-to-flow model provides a valuable framework for understanding BTC’s price in relation to scarcity. While not foolproof, the model is a positive step in achieving a comprehensive tool to analyze Bitcoin’s price.
Owing to such benefits, the tool has gained popularity among many crypto investors and experts. It is, however, recommended that investors not base their investment decisions solely on this tool.
In addition to S2F, investors should consider fundamental analysis, regulatory developments, market trends, and their risk tolerance to make investment decisions.
