Bitcoin Stock-to-Flow: A pricing logic that goes beyond simple mathematics

Why a Product Valuation Model Becomes the Focus of the Crypto Market

Since its inception in 2009, Bitcoin, as the first fully decentralized digital asset, has fundamentally changed people’s understanding of the nature of money. This network asset with a fixed cap of 21 million coins reached a high of $69,000 in November 2021, once again demonstrating its market appeal. However, Bitcoin’s price trajectory has never been smooth—periodic bull and bear markets alternate, creating the asset’s characteristic high volatility.

It is precisely because of this unpredictability that many investors have begun seeking a reliable analytical framework. The Stock-to-Flow (S2F) model emerged, which interprets Bitcoin’s future price movements by quantifying its scarcity.

The Core Logic of the Stock-to-Flow Model: From Precious Metals to Digital Assets

Stock-to-Flow is essentially a scarcity measurement tool, originally used to evaluate the value of precious metals (especially gold and silver). The model is based on two fundamental concepts:

Stock refers to the total circulating supply—assets that have been mined and exist within the system.

Flow represents the rate of new supply—usually measured by annual new production.

By dividing stock by flow, we obtain the Stock-to-Flow ratio. The higher the value, the scarcer the asset, and theoretically, the greater its potential value. Gold is regarded as a store of value precisely because it has an extremely high S2F ratio.

How Bitcoin Fits This Model

When the S2F analytical framework is applied to Bitcoin, its rationale becomes even more compelling. Bitcoin’s total supply is permanently capped at 21 million coins, which inherently makes it non-inflationary. More importantly, Bitcoin undergoes a halving event approximately every four years—the block reward for miners is cut in half, directly reducing the inflow of new coins.

The 2024 halving has confirmed this cyclical pattern, with each halving corresponding to a significant increase in the S2F ratio. Based on current data, Bitcoin’s price is $89,020, a correction from the all-time high of $126,080, but the long-term trend still follows the logic of increasing scarcity.

This model’s appeal lies in its simplification of a complex financial phenomenon into a straightforward formula: scarcity determines value.

Multiple Factors Affecting Bitcoin’s S2F Ratio

Beyond the predictable halving cycles, Bitcoin’s Stock-to-Flow ratio is influenced by a series of variables:

Mining Difficulty Adjustment determines the efficiency of new coin production. The Bitcoin network automatically adjusts mining difficulty every two weeks to maintain a consistent block generation time, directly impacting the flow metric.

Market Adoption Dynamics, including institutional investor entry, expansion of payment applications, and increased recognition as a store of value, all strengthen demand-side pressure on Bitcoin.

Regulatory Environment changes are a double-edged sword. Favorable policies can catalyze adoption waves, while strict regulation may suppress demand curves.

Technological Iterations, such as the maturity of the Lightning Network, Taproot upgrades, and other innovations, enhance Bitcoin’s practicality and attractiveness.

Macroeconomic Cycles and geopolitical risk premiums are also critical. During periods of high inflation or financial instability, Bitcoin is often viewed as a non-correlated asset, attracting capital inflows.

Crypto Market Sentiment driven by mainstream media coverage, community consensus, and leverage positions in derivatives markets also play a role.

Historical Performance of the Model: Successes and Failures

The Stock-to-Flow model created by PlanB has made some remarkable predictions. According to the model, Bitcoin should reach $55,000 around the 2024 halving, with more aggressive forecasts even targeting $1 million by the end of 2025. Historical data shows that the model has indeed demonstrated correlation with actual prices across multiple halving cycles—price trajectories generally follow the S2F curve, with short-term deviations driven by extreme market sentiment.

However, criticisms of the model are also sharp. Ethereum co-founder Vitalik Buterin has openly called the model “quite unreliable,” arguing that it oversimplifies supply and demand dynamics and can mislead investors. Trader Alex Krueger pointed out that predicting prices solely based on the stock-to-flow ratio is “meaningless.” These criticisms highlight the core weakness of the model: it assumes scarcity is the sole determinant, ignoring the complexities of actual market operation.

Pitfalls and Limitations in Practical Application

Variables the Model Cannot Incorporate

The Stock-to-Flow framework is inherently one-dimensional, attributing almost all value determination to scarcity. In reality, Bitcoin’s price is also affected by technological progress, use cases, increasing competition, and more. For example, the rise of alternative tokens may divert funds and attention, risks that are invisible within the S2F model.

Historical Correlation ≠ Future Predictability

While the model has shown statistical correlation in the past, correlation does not imply causation. The relative fit of Bitcoin’s S2F and price from 2013 to 2023 may be more attributable to specific stages of industry development rather than the predictive power of the model itself.

Risks of Oversimplification

For novice investors, relying entirely on a simple mathematical formula is dangerous. Although Blockstream CEO Adam Back acknowledges S2F as a fitting tool, even moderate supporters warn against using it as the sole basis for decision-making.

Proper Use of the Stock-to-Flow Investment Framework

If you truly want to incorporate S2F analysis into your investment strategy, do it as follows:

Step 1: Understand, Don’t Blindly Trust Deeply understand the mathematical basis and assumptions of the model, recognizing it as just one of many analysis tools.

Step 2: Historical Backtesting Study Bitcoin’s price reactions before and after each halving, but remember that past performance does not predict future results.

Step 3: Multi-Dimensional Analysis Combine S2F with on-chain indicators (address activity, whale holdings), technical analysis (support levels, moving averages), fundamentals (adoption rate, trading volume), and macro factors (interest rates, inflation expectations).

Step 4: Risk Management Set clear stop-loss points and position sizing rules. Do not ignore market risks just because the model shows optimistic signals.

Step 5: Long-Term Perspective The model is most suitable for holding periods exceeding one year; short-term traders should completely bypass it.

List of Model Limitations

1. Blind Spots to External Factors: Regulatory shocks, macroeconomic sudden changes, geopolitical black swan events are outside the model’s descriptive capacity.

2. Disconnect Between Utility and Demand: Advances in Bitcoin’s utility as a payment method or technological platform cannot be quantified within the scarcity framework.

3. Illusion of Past Success: The period from 2015-2021 was unique, with scarcity being a dominant price driver, but this cannot be generalized to all periods.

4. Misleading Potential: Aggressive price targets (e.g., $1 million forecasts) circulated without sufficient warning can foster investment bubbles.

Conclusion: Model as a Navigation Tool, Not an Absolute Truth

The Stock-to-Flow model offers an interesting perspective on Bitcoin’s valuation foundation. Scarcity is indeed important, and halving cycles are observable. However, treating it as gospel can lead to serious biases in investment decisions.

Bitcoin’s future price will be determined by a complex interplay of technological adoption, regulatory evolution, macroeconomic conditions, and competitive landscape—not merely flow ratio calculations. Wise investors should see S2F as a tool in their toolbox, not the entire toolbox.

In this volatile market full of black swan events, humility and multi-angle analysis are always the most prudent strategies.