What is the stock-to-flow model for Bitcoin?

The stock-to-flow model predicts Bitcoin’s price based on its scarcity, using the ratio of existing supply to new annual supply, and has historically aligned with major price surges, especially after halving events.

Jul 20, 2025 at 04:35 am

Understanding the Stock-to-Flow Model

The stock-to-flow (S/F) model is a valuation framework originally used for commodities like gold and silver to determine scarcity and value. In the context of Bitcoin, it has been adapted to predict price movements based on its limited supply schedule. The model compares the total existing supply (stock) of an asset to the new supply being produced annually (flow). The resulting stock-to-flow ratio is used to estimate how scarcity affects price.

In Bitcoin’s case, the S/F model gained attention due to its historical accuracy in aligning with major price movements, especially around halving events. These events reduce the rate at which new Bitcoins enter circulation, increasing scarcity.

How the Stock-to-Flow Model Applies to Bitcoin

Bitcoin has a fixed maximum supply of 21 million coins, and new coins are created through mining at a predictable rate. Every 210,000 blocks, or roughly every four years, the block reward given to miners is halved. This event, known as the Bitcoin halving, directly impacts the flow component of the S/F model.

Before each halving, the flow increases as more coins are mined. After the halving, the flow decreases sharply, causing the S/F ratio to rise. Historical data shows that each halving has been followed by a significant price increase, which proponents of the S/F model attribute to the increased scarcity and reduced supply growth.

Calculating the Stock-to-Flow Ratio

To calculate the stock-to-flow ratio for Bitcoin, you take the total circulating supply (stock) and divide it by the annual production of new coins (flow). Here’s a breakdown of the steps:

• Determine the current circulating supply: This is the total number of Bitcoins currently in existence.
• Calculate the annual flow: Multiply the current block reward by the number of blocks mined per year (approximately 52,560 blocks).
• Divide stock by flow: This gives the S/F ratio.

For example, if the circulating supply is 19.5 million and the annual flow is 328,500 (based on a block reward of 6.25 BTC), the S/F ratio would be approximately 59.4.

This ratio is then used in regression models to estimate future price levels.

Historical Accuracy of the Stock-to-Flow Model

The S/F model has been retroactively applied to Bitcoin’s historical price data and has shown a strong correlation between predicted values and actual market prices. For instance:

• Post-2012 halving: The S/F model projected a rising price trajectory, which aligned with the 2013 bull run.
• Post-2016 halving: The model again predicted a price surge, matching the 2017 rally.
• Post-2020 halving: The model forecasted a price above $100,000, and although Bitcoin has not consistently reached that level, it did briefly touch near $65,000 in 2021.

These correlations have led many analysts and investors to treat the S/F model as a long-term valuation tool rather than a short-term trading signal.

Criticisms and Limitations of the Stock-to-Flow Model

Despite its popularity, the S/F model faces criticism from various financial analysts and economists. Some of the main concerns include:

• Ignores demand factors: The model primarily focuses on supply and scarcity, overlooking shifts in demand driven by macroeconomic conditions, regulatory changes, and adoption trends.
• Overfitting: Critics argue that the model may be overfitted to past data and may not reliably predict future prices, especially in unpredictable markets.
• Market sentiment and speculation: Bitcoin’s price is also influenced by investor sentiment, media coverage, and speculative trading, none of which are captured by the S/F model.

While the S/F model provides a useful framework for understanding Bitcoin’s scarcity-driven value proposition, it should not be used in isolation for investment decisions.

Implementing the Stock-to-Flow Model in Investment Strategy

For investors interested in incorporating the S/F model into their strategy, here’s a step-by-step approach:

• Track Bitcoin’s circulating supply: Use platforms like Blockchain.com or CoinMetrics to monitor real-time supply data.
• Calculate the current S/F ratio: Use the formula: Stock / Flow. Adjust the flow based on the current block reward and annual block count.
• Compare to historical S/F values: Use charts and regression lines to identify where Bitcoin’s current price stands relative to the model’s projections.
• Combine with other metrics: Use on-chain data, market sentiment indicators, and macroeconomic factors to refine your strategy.

This multi-layered approach allows for a more nuanced understanding of Bitcoin’s valuation.

Frequently Asked Questions

Q: Can the stock-to-flow model be applied to other cryptocurrencies?

A: While the S/F model is primarily associated with Bitcoin, it has been applied to other scarce digital assets like Litecoin and even Ethereum post-EIP-1559. However, its effectiveness diminishes for assets with unpredictable or inflationary supply policies.

Q: How often does the stock-to-flow ratio change for Bitcoin?

A: The S/F ratio changes daily as new coins are mined and the circulating supply increases. However, the most significant changes occur around halving events when the block reward is cut in half.

Q: Is the stock-to-flow model reliable for short-term trading?

A: No, the S/F model is best suited for long-term valuation analysis. Short-term price movements are influenced by numerous factors such as market sentiment, news events, and trading volume, which the model does not account for.

Q: What happens to the stock-to-flow ratio after Bitcoin’s final halving?

A: After the last halving, expected around 2140, no new Bitcoins will be created. At that point, the flow becomes zero, making the S/F ratio undefined. The model will no longer apply in its current form, and other valuation methods will become more relevant.