If you have been following Bitcoin, you will have probably come across the Bitcoin stock-to-flow (S2F) model and wondered whether it makes for a good bitcoin price indicator.

Read on to learn what the Bitcoin S2F model is, how it works, and whether it can accurately predict the price of bitcoin or not.

What is the Bitcoin stock-to-flow model and how does it apply to BTC?

The Bitcoin stock-to-flow model is a tool that attempts to forecast the price of BTC by comparing its current supply to its annual production rate.

The model was first published in March 2019 by the pseudonymous Bitcoin (BTC) trader Plan B and has correctly predicted the price of the main cryptocurrency on several occasions.

Before BTC, the stock-to-flow (S2F) model was used to predict the price of commodities and precious metals like gold and silver. This is because all these assets share one thing in common – scarcity. 

Gold, for example, has a limited supply due to the time-consuming and expensive process of searching and mining for it.

In the same vein, bitcoin is also a scarce asset because of its coin supply cap and how new units of bitcoin are minted. The production of new coins follows a process known as “mining,” which involves using expensive mining hardware and lots of electricity. Additionally, bitcoin’s maximum supply is capped at 21 million coins, with about 19,81 million already in circulation. Hence, the stock-to-flow (S2F) model leverages the increasing scarcity of bitcoin to predict its price.

This has shown that the model shows a good level of accuracy with scarce assets. However, when tried on assets like fiat currencies that have an infinite and uncontrollable supply, the stock-to-flow model may be very inaccurate.

How to calculate the Bitcoin stock-to-flow ratio?

In the S2F model, stock refers to the existing stockpiles or reserves of an asset and flow refers to the annual rate at which it is produced. To get the stock-to-flow ratio of an asset, you will have to divide its existing supply by its annual rate of production.

The Bitcoin stock-to-flow ratio is obtained when you divide its current circulating supply by the annual rate of mining new coins.

Bitcoin currently has a supply of about 19.81 million and an annual flow of 164,250 BTC (based on the number of current block rewards). 

A block on the Bitcoin blockchain is mined approximately every 10 minutes, and miners receive a current block reward of 3.125 BTC in newly minted tokens for every block they mine. The Bitcoin mining difficulty algorithm ensures that around 144 blocks are mined daily, the annual production rate is about 164,250 BTC.

By applying the S2F formula, the current S2F ratio will be 120.6. This signifies that it will take about 120 years to mine the total bitcoin supply without considering the halving events and supply cap. The model, therefore, suggests that the price of bitcoin can be predicted since we know the exact supply rate of bitcoin.

The S2F ratio changes with time as the supply rate of bitcoin reduces through halvings. Halving is a scheduled event on the Bitcoin blockchain that reduces block rewards every 210,000 (about four years) until the maximum supply of 21 million coins is reached. Hence, the BTC stock-to-flow rate increases over time as annual flow reduces.

Considering the price spikes that often occur at Bitcoin halving events, many investors use the S2F model as one of their bitcoin price forecasting tools.

The Bitcoin stock-to-flow model and price predictions 

The Bitcoin stock-to-flow model has seen its share of wins and misses. It correctly predicted Bitcoin’s $55,000 price after the 2020 halving but missed the mark in 2022 when Bitcoin peaked at just $30,000 instead of $100,000. 

Plan B’s latest updates, shared in September 2024, offer a bold vision for Bitcoin’s rise through 2025, sparking renewed optimism. The predictions include:

• October 2024: Bitcoin reaches $70,000 as the market experiences a classic “pump” month.
• November 2024: Following Trump’s potential election win and a shift in U.S. crypto policy, Bitcoin is expected to hit $100,000.
• December 2024: The surge in ETF investments could send Bitcoin’s price to $150,000, as the market sees increasing confidence from major institutions.
• January 2025: A revival of crypto in the U.S. could boost Bitcoin to $200,000, as the country reopens its arms to digital assets.
• March 2025: With Bitcoin being recognized as legal tender in places like Bhutan, Argentina, and Dubai, we could see its price climb to $300,000, signaling a major milestone for its worldwide acceptance.
• May 2025: Other nations joining the Bitcoin adoption race may see the price climbing to $500,000.
• July-December 2025: A “face-melting FOMO” phase is projected to result in an all-time high of $1,000,000 for Bitcoin.
• 2026-2027: The crazy growth might slow, and Bitcoin could settle at $500,000, but we could also see it fall to $200,000 if the bear market kicks in and things take a downturn.

Criticisms of the stock-to-flow model

While the simplicity of the Bitcoin stock-to-flow model makes it attractive, some experts argue it overlooks essential factors that influence Bitcoin’s price. It places too much emphasis on supply and not enough on demand drivers like market sentiment, technological progress, and evolving regulations, which can have a huge impact on Bitcoin’s value.

Additionally, Bitcoin’s practical uses and growing adoption are critical in shaping its price, but the model ignores these elements. 

The discrepancy between past predictions and actual price movements, particularly in volatile markets, has also raised questions about its reliability. Many experts recommend taking a more holistic approach to understanding Bitcoin’s value rather than solely relying on stock-to-flow.

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