Stock to Flow

The Stock-to-Flow ratio is a scarcity metric originally used to value precious metals, now widely applied to Bitcoin and other fixed-supply assets. It measures how many years of current production would be needed to match the existing supply.

$$\text{S2F} = \frac{\text{Total Existing Supply (Stock)}}{\text{Annual New Production (Flow)}}$$

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The Scarcity Thesis

flowchart LR
    subgraph Low["Low S2F (< 10)"]
        L1["Easy to produce"]
        L2["Not scarce"]
        L3["Lower store of value"]
    end
    
    subgraph Medium["Medium S2F (10-50)"]
        M1["Moderate production cost"]
        M2["Some scarcity"]
        M3["Potential store of value"]
    end
    
    subgraph High["High S2F (50+)"]
        H1["Very hard to produce"]
        H2["Highly scarce"]
        H3["Strong store of value"]
    end

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Asset Comparison

Asset	Stock	Annual Flow	S2F Ratio
Gold	~200,000 tons	~3,000 tons	~66
Silver	~550,000 tons	~25,000 tons	~22
Bitcoin (2024)	~19.5M BTC	~164,250 BTC	~119
Bitcoin (2028+)	~20.5M BTC	~82,125 BTC	~250

Bitcoin's S2F increases dramatically after each halving event, where the block reward (flow) is cut in half.

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Bitcoin Halving Dynamics

flowchart TD
    subgraph Halving["Bitcoin Halving Cycle"]
        H1["2012: 50 → 25 BTC per block"]
        H2["2016: 25 → 12.5 BTC per block"]
        H3["2020: 12.5 → 6.25 BTC per block"]
        H4["2024: 6.25 → 3.125 BTC per block"]
    end
    
    subgraph Effect["S2F Impact"]
        E1["Flow halved"]
        E2["S2F doubles"]
        E3["Scarcity increases"]
    end
    
    H1 --> H2 --> H3 --> H4
    H4 --> E1 --> E2 --> E3

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The S2F Price Model

PlanB's model suggests a power-law relationship between S2F and market value:

$$\text{Price} \propto \text{S2F}^{3.3}$$

This implies that each doubling of S2F leads to approximately 10x increase in price.

S2F	Model Prediction
10	~$1,000
25	~$10,000
50	~$55,000
100	~$288,000

Important: This is a model, not a guarantee. Critics argue it ignores demand dynamics and has questionable statistical validity.

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Practical Applications

1. Long-Term Valuation Framework

Compare current price to S2F-predicted price:

• Price << S2F model → Potentially undervalued
• Price >> S2F model → Potentially overvalued

2. Halving Event Analysis

flowchart LR
    subgraph PreHalving["Before Halving"]
        P1["Anticipation builds"]
        P2["S2F about to increase"]
    end
    
    subgraph PostHalving["After Halving"]
        P3["Flow reduced 50%"]
        P4["New S2F equilibrium"]
        P5["Price adjustment period"]
    end
    
    PreHalving --> PostHalving

3. Cross-Asset Scarcity Analysis

Use S2F to compare scarcity profiles across multiple assets and identify relative value opportunities.

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Calculation Details

For Bitcoin specifically:

$$\text{Flow} = \text{Blocks per Year} \times \text{Block Reward}$$

Where:

• Blocks per year ≈ 52,560 (one every 10 minutes)
• Block reward halves every 210,000 blocks (~4 years)

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Advantages

• Quantifies scarcity — Provides concrete measure of hard money properties
• Historical correlation — Strong fit with Bitcoin price history (through 2021)
• Cross-asset comparison — Compare any fixed-supply asset
• Simple to calculate — Just stock divided by flow

Disadvantages

• Ignores demand — Price requires buyers, not just scarcity
• Model limitations — Power-law relationship may not hold forever
• Supply assumptions — Lost coins and unretrievable supply complicate true "stock"
• Critics argue — Statistical methods may be flawed (cointegration issues)

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Further Reading

• PlanB's Original S2F Article — The foundational paper introducing the S2F model
• Bitcoin Magazine Pro: Stock-to-Flow Model — Live S2F chart with detailed explanations
• How to Value Bitcoin and Other Cryptocurrencies — Lyn Alden's comprehensive cryptocurrency valuation framework including S2F analysis
• The Bitcoin Standard — Saifedean Ammous' book exploring scarcity and sound money principles

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Indicator Assessment

quadrantChart
    title S2F Model Indicator Assessment
    x-axis Low --> High
    y-axis Low --> High
    quadrant-1 High Performance
    quadrant-2 Specialist Use
    quadrant-3 Limited Application
    quadrant-4 Mainstream Adoption
    Bitcoin S2F: [0.70, 0.60]

Dimension	Score	Notes
Popularity	8/10	Widely discussed in Bitcoin community; PlanB's model has 10M+ views
Reliability	5/10	Strong historical fit through 2021, but model diverged significantly in 2022; fundamentally ignores demand side
Complexity	2/10	Very simple ratio calculation; interpretation requires understanding of monetary economics
Versatility	3/10	Only applicable to fixed-supply assets (Bitcoin, precious metals); not useful for most cryptocurrencies or traditional assets
Recent Interest	7/10	Interest waned after 2022 model deviation; renewed interest around 2024 halving cycle

Note: S2F is primarily a Bitcoin-specific model. It has limited applicability to other cryptocurrencies that don't have fixed, predetermined supply schedules. For assets without hard supply caps (most altcoins), S2F provides no meaningful signal.