## Bitcoin Stock-to-Flow: Deciphering the Depletion Principle in Cryptocurrency Valuation

Since its launch in 2009, Bitcoin has revolutionized the understanding of what constitutes a currency. It is the first fully decentralized, transparent, and digital monetary unit that attracts both retail investors and institutional players. Its history is full of dramatic surges—remember the rise to $69,000 in November 2021—and equally sharp declines, indicating high asset volatility.

This unpredictability raises a complex question for investors: how to determine the fair value of Bitcoin in the long term? The Stock-to-Flow (S2F) model attempts to answer this— a mathematical tool that analyzes the ratio between existing supply and its growth rate.

## The Essence of Stock-to-Flow: From Precious Metals to Cryptocurrencies

Stock-to-Flow is a simple yet powerful indicator traditionally used to evaluate scarce resources such as gold and silver. The model is based on two key parameters:

**Stock (запас)** — the total amount of the commodity already in circulation. For Bitcoin, this is all 21 million coins that will ever be mined.

**Flow (поток)** — the annual volume of new supply. In the context of Bitcoin, this is the number of new coins created by miners each year.

The S2F ratio is calculated by dividing the total stock by the annual flow. The higher this ratio, the rarer and potentially more valuable the asset. Gold has an extremely high S2F ratio because its annual production is only a small percentage of the total accumulated gold—this explains its historical role as a store of value.

## Why Bitcoin Fits the Stock-to-Flow Logic

Bitcoin is ideally suited for the S2F model for several reasons. First, its maximum supply is capped at 21 million coins—an embedded deflationary mechanism in the code. Second, this scarcity is reinforced by halving events—occurring approximately every four years—that cut the mining reward in half.

Each halving reduces the rate at which new Bitcoin enters the network. This means the flow decreases, and the S2F ratio increases—potentially indicating a rising scarcity and, consequently, a higher potential value.

The current Bitcoin price is $89,000. S2F proponents argue that this growth is largely explained by the slowdown in the issuance of new coins rather than other factors.

## Factors Beyond Halving That Influence Bitcoin’s S2F

While halving is the main factor affecting the S2F ratio, Bitcoin’s price formation mechanics are much more complex:

**Network difficulty** adjusts approximately every two weeks. When more miners join, difficulty increases; when miners leave, difficulty decreases. This directly impacts the rate of new Bitcoin creation and thus the flow.

**Adoption scales** play a crucial role. As more individuals, companies, and governments perceive Bitcoin as a payment tool or store of value, demand increases—holding supply constant or decreasing—potentially raising the price.

**Regulatory environment** worldwide either stimulates or hampers Bitcoin’s spread. Strict regulations can stifle demand, while favorable policies can accelerate adoption.

**Technological innovations** in the Bitcoin ecosystem, such as scalability and security improvements, enhance the asset’s utility and demand.

**Economic cycles** and macroeconomic conditions significantly influence investment behavior. During inflationary and currency devaluation periods, Bitcoin is viewed as a hedge, increasing its attractiveness.

**Competition** from alternative cryptocurrencies can redirect capital elsewhere, potentially reducing demand for Bitcoin.

**Market psychology** and media coverage often create price fluctuations that are not explained by fundamental indicators.

All these factors collectively influence the balance between stock and flow, modulating Bitcoin’s actual price dynamics.

## S2F Forecasts and Their Historical Accuracy

The model’s creator, analyst PlanB, made bold predictions based on S2F. After the 2024 halving, the model forecasted Bitcoin could approach $55,000. In the long term, PlanB predicted the possibility of reaching $1 mln by the end of 2025.

Notably, the model has historically shown good correlation with Bitcoin’s actual price movements post-halving. The S2F chart often aligns with real price dynamics, except during extreme market periods.

However, long-term investors who ignore short-term fluctuations note that the model provides a useful guideline for understanding Bitcoin’s fundamental growth trajectory.

## Criticism of the Model: Skeptics’ Voices

Despite its popularity, the S2F model faces harsh criticism from respected experts.

Vitalik Buterin, co-founder of Ethereum, openly called S2F “not very good” as a model, accusing it of oversimplifying demand and supply dynamics. In his view, the linear predictive approach of the model is its fundamental flaw.

Adam Back, CEO of Blockstream and an early Bitcoin advocate, sees the model as a reasonable approximation of historical data but admits it remains an assumption, not a physical law.

Alex Krüger, a well-known crypto trader and economist, outright rejects the forecasting methodology of S2F, calling it meaningless. Swan Bitcoin founder Cory Klippsten warns that S2F forecasts can mislead inexperienced investors.

Nico Cordiero of Strix Leviathan emphasizes that the model does not account for actual demand and macroeconomic conditions, relying solely on scarcity as a determinant of value.

## Limitations of the Model: What It Omits

**Ignoring external variables**: S2F focuses on scarcity but does not consider technological breakthroughs, regulatory shifts, economic cycles, or market sentiment—all of which can radically alter pricing.

**The past does not guarantee the future**: Although the model has performed well retrospectively, its predictive power remains questionable. The cryptocurrency market is too young and complex to treat historical correlations as guarantees.

**Over-simplification**: Bitcoin is evolving. The perception of it as a simple store of value is giving way to understanding it as a technological platform—with Lightning Network and other innovations expanding its functionality. S2F does not capture this evolution.

**Risk of misinterpretation**: Optimistic forecasts from the model often fail to materialize, creating risks for inexperienced investors who rely too heavily on a single analytical tool.

## How to Use S2F in Investment Strategies

If you decide to use the S2F model, keep in mind these principles:

**It’s one tool among many**, not a panacea. Combine S2F with technical analysis, fundamental analysis, and market sentiment analysis.

**Focus on the long-term**. The model is inaccurate for short-term trading. Bitcoin’s volatility is often driven by short-term factors that S2F does not consider.

**Manage risks**: Set stop-losses, diversify your portfolio, and do not invest more than you can afford to lose.

**Pay attention to context**: Be aware of changing regulatory environments, technological developments, the global economy, and market sentiment.

**Regularly reassess your strategy**. The crypto market is dynamic. Be prepared to adapt your approach as new information emerges.

## Conclusion: The Role of S2F in Modern Crypto Economics

The Stock-to-Flow model remains a popular and intuitively understandable tool for analyzing Bitcoin. Its core idea—that scarcity drives value—is logical and supported by many market participants.

However, naive faith in S2F as the sole guide in the fog of cryptocurrency pricing would be a mistake. Bitcoin’s future will be shaped by a complex interplay of factors: technological development, regulatory changes, demand evolution, and a broad range of macroeconomic variables.

The Stock-to-Flow model is a useful lens but not the full picture. Use it wisely, always mindful of its limitations.