Bitcoin's Stock-to-Flow (S2F) Model: A Complete Analysis from Theory to Practice

Introduction: Why Bitcoin Investors Need to Understand the S2F Model

Since its launch in 2009, Bitcoin has redefined the understanding of value storage with its fully decentralized, verifiable, and supply-fixed characteristics. As the leading asset in the crypto market, Bitcoin reached an all-time high of over $69,000 in November 2021, but its journey has also been marked by intense cyclical fluctuations—rapid rises followed by sharp declines—posing significant challenges for investors’ decision-making.

Faced with such market conditions, investors are constantly seeking tools to predict price trends. The Stock-to-Flow (S2F) model emerged to fill this need. By analyzing Bitcoin’s scarcity, it explains its long-term value logic and serves as a beacon for those navigating the “waves” of crypto assets.

Core Principle of the S2F Model: The Relationship Between Scarcity and Value

Originally used to evaluate the value of precious metals like gold and silver, the S2F model is based on two fundamental concepts:

Stock: The total amount of the commodity that has been mined and is in circulation— for Bitcoin, this is the total number of BTC issued.

Flow: The amount of new supply produced per unit time— for Bitcoin, this is the annual new mined output.

The S2F ratio is calculated as: Stock ÷ Flow. A higher ratio indicates greater scarcity, which theoretically correlates with higher value potential. For example, gold has a very high S2F ratio because its annual production is much lower than the total mined amount, explaining why gold has been regarded as a store of value for thousands of years.

How Bitcoin Fits the S2F Logic

Bitcoin’s design makes it perfectly aligned with the S2F analysis framework. Its absolute cap of 21 million coins imparts a natural deflationary property, further reinforced by the halving events that occur approximately every four years.

During halving, the reward for mining a block is cut by 50%, directly reducing the annual new Bitcoin supply. Recent halving events occurred in 2012, 2016, and 2020, each causing a sharp drop in new coin issuance. This mechanism means that over time, Bitcoin’s S2F ratio will continue to rise—supply growth slows while stock accumulates.

Current market data shows Bitcoin’s circulating supply approaching the 21 million cap, placing its S2F ratio at a historical high. Proponents argue that this increasing scarcity will inevitably drive prices upward, similar to the logic that underpins gold’s value.

Multiple Factors Affecting Bitcoin’s S2F Ratio

Beyond halving cycles, several variables can influence Bitcoin’s actual scarcity:

Mining Difficulty Adjustment: The network adjusts mining difficulty approximately every two weeks to maintain an average block time of 10 minutes. As more hash power joins the network, difficulty rises; if hash power decreases, difficulty falls. This directly impacts the rate of new Bitcoin production, affecting the Flow component.

Market Adoption: The extent to which individuals, institutions, or even governments accept Bitcoin directly influences demand. For example, in 2024, the approval of Bitcoin spot ETFs in the US marks a new phase of institutional acceptance, which can boost demand and alter supply-demand dynamics.

Regulatory Policies: Global regulatory attitudes vary. Strict regulations may suppress Bitcoin usage and mining, while friendly policies can stimulate market activity. Countries like El Salvador adopting Bitcoin as legal tender, and policies in places like Vitalik Buterin’s location, influence the overall ecosystem.

Technological Iterations: Solutions like the Lightning Network, privacy enhancements, and overall security upgrades can indirectly impact Bitcoin’s utility and attractiveness.

Macroeconomic Environment: Factors such as global inflation, exchange rate fluctuations, and geopolitical risks can drive funds into Bitcoin as a hedge, increasing demand.

Competing Cryptos: The emergence of alternatives like Ethereum, Solana, and their potential superior functionalities or use cases may divert investment interest away from Bitcoin.

These factors collectively influence Bitcoin’s supply-demand relationship, determining whether its S2F ratio can effectively translate into price appreciation.

Application of the S2F Model in Price Prediction

The analyst PlanB, who developed the S2F model, has made bold price forecasts based on it. According to his analysis, Bitcoin should reach around $55,000 before and after the 2024 halving, with a potential target close to $1 million by the end of 2025. These predictions are based on fitting historical data—each halving has historically been followed by a significant price increase aligned with S2F growth.

Historical charts show Bitcoin’s price often tracking the S2F curve, except during certain extreme speculative periods. For long-term investors who are less concerned with daily volatility, this model appears quite compelling. Data indicates a clear correlation between S2F and Bitcoin’s price, especially around halving cycles.

However, past performance does not guarantee future results.

Expert Disputes: Is the S2F Model Reliable?

Within the crypto community, there is notable disagreement regarding the accuracy of the S2F model.

Supporters’ View: Adam Back, CEO of Blockstream, considers the S2F model a reasonable fit to historical data. He points out that when Bitcoin’s new issuance slows (via halving), supply decreases, naturally pushing prices higher—this aligns with basic economic principles.

Critics’ View: Vitalik Buterin, co-founder of Ethereum, dismisses the model as “not that great,” citing fundamental flaws in its predictive approach. Similarly, Swan Bitcoin founder Cory Clipsten and prominent trader Alex Krueger have expressed reservations, arguing that the model oversimplifies market dynamics and ignores actual demand fluctuations.

Strix Leviathan’s Nico Cordeiro further questions the model’s foundational assumption, believing that relying solely on scarcity as a value driver is one-sided—Bitcoin’s utility, network effects, and market sentiment are equally critical.

Despite these criticisms, the S2F model remains popular among investors due to its simplicity and intuitiveness. The key is to recognize that, while it has shown correlation with Bitcoin’s price historically—especially around halving events—it should not be the sole basis for investment decisions.

Fundamental Limitations of the S2F Model

Ignoring External Variables: The S2F model focuses on scarcity but neglects many external factors that can profoundly impact Bitcoin’s value—technological breakthroughs, regulatory shifts, economic crises, and volatile market sentiment. These can overturn long-term predictions in the short term.

Past ≠ Future: Although S2F has demonstrated some predictive accuracy in certain periods, the complexity and uncertainty of the crypto market mean that historical patterns may no longer hold. The assumption that halving always leads to higher prices is overly simplistic.

Overreliance on Scarcity: Bitcoin’s value is not solely derived from scarcity. Its usability as a payment method, trustworthiness as a store of value, and the maturity of second-layer solutions like Lightning all influence demand. As Bitcoin’s functions expand, a supply-only analysis may be insufficient.

Interpretation Risks: Optimistic forecasts (e.g., reaching $1 million) are widely circulated, but if these do not materialize, early investors relying heavily on the model could suffer losses. While Hal Finney’s $10 million valuation and ARK Invest’s $1 million forecast reflect different views, both highlight the high uncertainty about future prices.

How to Rationally Apply the S2F Model in Practice

For participants considering integrating S2F into their investment framework, the following recommendations are valuable:

Step 1: Deeply Understand the Model. Don’t follow blindly. Grasp how S2F compares stock and flow to quantify scarcity, and how changes in this ratio relate to historical prices.

Step 2: Review Historical Data. Examine Bitcoin’s performance before and after past halvings, understand deviations between S2F and actual prices, and analyze periods where the model failed.

Step 3: Diversify Risks. Use S2F as part of a broader decision-making process, not the sole factor. Combine technical indicators (RSI, MACD), fundamental metrics (network activity, trading volume), and market sentiment analysis (social media trends, institutional moves).

Step 4: Monitor Environment Changes. Stay alert to regulatory news, technological upgrades, macroeconomic data, which can influence the model’s predictive power.

Step 5: Implement Risk Management. Set clear stop-loss levels, limit individual positions, and maintain sufficient cash reserves. Recognize that no model is infallible.

Step 6: Adopt a Long-Term Perspective. S2F is most suitable for long-term investors, as its logic is based on gradual scarcity. Short-term traders should be cautious, as the model’s predictive strength diminishes over shorter horizons.

Step 7: Regularly Review and Adjust. The crypto market is highly dynamic. Reassess your investment framework monthly or quarterly to adapt to new information and conditions.

The Significance of S2F in the Current Bitcoin Market Context

As of December 2025, Bitcoin’s price fluctuates around $89,000, still below its all-time high of $126,080. In this context, the S2F model prompts us to consider: Is the current price already reflecting the scarcity premium?

The core logic remains valid—Bitcoin’s supply is decreasing gradually, and adoption is expanding. However, short-term price movements are driven by many non-scarcity factors. Macroeconomic policies, geopolitical events, and traditional financial markets can impact crypto prices in the short term.

Summary: S2F Is a Tool, Not a Crystal Ball

Bitcoin’s future depends on a complex interplay of multiple factors, not just scarcity. While the S2F model offers a useful framework for understanding Bitcoin’s long-term value proposition, it is far from a perfect predictive tool.

Investors should view S2F as one instrument in their analysis toolbox—not the sole compass. Technological advances, market adoption, global policy environments, and economic cycles will shape Bitcoin’s trajectory. In this dynamic market, flexibility, caution, and continuous learning are often more valuable than reliance on any single model.

Frequently Asked Questions

Q: How does the S2F model predict Bitcoin’s price?
A: S2F calculates the ratio of circulating Bitcoin to annual new issuance. A higher ratio indicates greater scarcity, historically correlating with higher prices. The model extrapolates future prices based on the assumption that halving reduces supply growth, leading to price increases.

Q: How accurate is the S2F model in predictions?
A: Mixed results. It has correctly predicted some halving cycles but has also missed other significant price movements and peaks. Experts generally see it as an oversimplification of market dynamics.

Q: How will future halving events influence S2F predictions?
A: In theory, halving will increase the S2F ratio, making Bitcoin more scarce. However, actual price impact depends on adoption, technological developments, and macroeconomic factors—elements outside the model’s scope.