What is the Bitcoin stock-to-flow model?

The Bitcoin stock-to-flow model is an attempt to explain bitcoin's value through scarcity, using the ratio of coins already in existence to coins mined each year. It borrows a measure long used for gold and silver. The model became famous in the 2019 to 2021 cycle and is now one of the most debated ideas in crypto valuation.

What is the stock to flow ratio for bitcoin?

Stock is the total supply that already exists. Flow is the new supply added in a year. Dividing one by the other gives the ratio, which can also be read as the number of years it would take to produce the current stock at today's rate.

Bitcoin's flow is set by its code. Miners receive a fixed number of new coins per block, and that amount halves roughly every four years. Each bitcoin halving therefore roughly doubles the stock-to-flow ratio overnight. Total supply is capped at 21 million coins, explained in why there are only 21 million bitcoin.

How does the stock to flow bitcoin PlanB model work?

PlanB, a pseudonymous Dutch investor active on Twitter, published the model in March 2019. He plotted bitcoin's stock-to-flow ratio against its market value and found what looked like a close statistical fit, described as a power law. Under the model, each halving lines up with a large jump in market value. PlanB later released a version called S2FX that put gold and silver on the same curve.

The model drew wide attention because bitcoin traded above its path from late 2019 until May 2021. This guide does not repeat its price targets, which were never guarantees.

How does stock to flow bitcoin vs gold compare?

Gold is the classic example of a high stock-to-flow asset, because yearly mining adds only a small share to the large stock already above ground. A report from crypto exchange Bybit, cited in April 2024, put gold's ratio at about 60 and bitcoin's at about 56 before that month's halving, rising to about 112 after it. On this measure, bitcoin's new supply is now smaller relative to its stock than gold's. For a wider comparison, see bitcoin vs gold.

What is the main criticism of stock to flow?

Critics raise several points. A 2022 Bitcoin Magazine guest post argued the model is partly circular, because market value includes stock and so does the ratio it is compared with. It also said the fit relies on trending data that can show a false correlation, and that the model has no demand side at all. Others note it rests on only about a decade of data.

The model's record also weakened. Bitcoin traded well below its projection after the May 2021 crash, and in June 2022 fell below the model's lower band for the first time. Ethereum co-founder Vitalik Buterin then called models that suggest a predetermined price harmful because they create false certainty. PlanB replied that the model had worked well from 2019 to 2022.

This guide explains how the model works and is not a prediction or investment advice.