One of the most popular – and controversial – models for predicting Bitcoin’s price is the Stock-to-Flow (S2F) model. Created by the pseudonymous analyst PlanB, the model uses Bitcoin’s scarcity (measured as the ratio of existing supply to new production) to predict future price levels. While the model has been remarkably accurate in the past, it has also attracted significant criticism.
What Is Stock-to-Flow?
Stock-to-Flow is a measure of scarcity. It is calculated by dividing the existing supply of an asset by the annual production (flow). The higher the ratio, the scarcer the asset.
For gold, the stock-to-flow ratio is approximately 62 – meaning that at current production rates, it would take 62 years to mine the amount of gold that already exists. This is one of the reasons gold has been a store of value for thousands of years.
For Bitcoin, the stock-to-flow ratio increases with each halving. After the 2024 halving, Bitcoin’s S2F ratio surpassed 120 – making it scarcer than gold for the first time in history.
The S2F Model
PlanB’s S2F model plots Bitcoin’s market cap against its stock-to-flow ratio on a logarithmic scale. The model has historically shown a strong correlation between S2F and price, with Bitcoin’s price tending to cluster around the predicted value.
The model predicted that after the 2020 halving, Bitcoin would reach $55,000-$100,000. In 2021, Bitcoin reached $69,000 – within the predicted range. The model also predicted that after the 2024 halving, Bitcoin would reach $100,000-$150,000, which it achieved in late 2024.
Criticisms of the Model
The S2F model has attracted significant criticism from economists and analysts:
- Correlation vs. causation: Critics argue that the model shows correlation but not causation. Just because price has followed S2F in the past does not mean it will continue to do so.
- Demand assumption: The model assumes that scarcity alone drives price. But price is determined by supply AND demand. If demand does not increase, scarcity alone will not drive price higher.
- Small sample size: Bitcoin has only had four halvings. With such a small sample size, it is difficult to draw statistically significant conclusions.
- Model breakdown: In 2022, Bitcoin’s price fell significantly below the S2F prediction, leading some to declare the model broken. However, proponents argue that the model is a long-term predictor and short-term deviations are expected.
The Bottom Line
The S2F model is not a crystal ball – no model is. But it provides a useful framework for thinking about Bitcoin’s value in terms of its scarcity. Whether or not the model’s specific price predictions prove accurate, the underlying insight is sound: Bitcoin’s increasing scarcity, driven by the halving, is a fundamental driver of its long-term value. As Bitcoin becomes scarcer relative to demand, the economic logic suggests that its price will continue to rise over time.