Stock-to-Flow Model

What Is the Stock-to-Flow Model?

The stock-to-flow model is a valuation framework that attempts to predict an asset's market value based on its scarcity. Originally applied to commodities like gold and silver, the model was adapted for Bitcoin by the pseudonymous analyst PlanB in March 2019 in an article titled "Modeling Bitcoin's Value with Scarcity."

The core idea is simple: assets that are difficult to produce relative to their existing supply tend to hold value better over time. Gold has been valued for millennia partly because annual mining output is tiny compared to above-ground reserves. Bitcoin, with its algorithmically enforced emission schedule and hard cap of 21 million coins, exhibits a similar property: one that becomes more pronounced with each halving event.

The model gained widespread attention during the 2020-2021 bull market when Bitcoin's price appeared to track its S2F projections closely. It became one of the most debated valuation frameworks in the cryptocurrency space.

How It Works

The stock-to-flow ratio is calculated with a straightforward formula:

Stock-to-Flow Ratio = Stock / Flow

Where:
  Stock = total existing supply (circulating supply)
  Flow  = new units produced per year

For Bitcoin, the circulating supply as of mid-2026 is approximately 20.05 million BTC. With the current block reward of 3.125 BTC per block and roughly 144 blocks mined per day, annual issuance is approximately 164,250 BTC:

Annual Flow = 3.125 BTC × 144 blocks/day × 365 days ≈ 164,250 BTC

S2F = 20,050,000 / 164,250 ≈ 122

PlanB then applied a log-log regression to relate Bitcoin's S2F ratio to its market capitalization, producing the following power law relationship:

ln(Market Value) = 3.3 × ln(S2F) + 14.6

Or equivalently:
  Market Value = e^14.6 × S2F^3.3

The original model claimed an R-squared of 0.95 based on 111 monthly data points from December 2009 through February 2019, suggesting that 95% of the variance in Bitcoin's market value could be explained by its S2F ratio alone.

S2F Across Halvings

Because the halving cuts Bitcoin's block reward in half approximately every four years, the S2F ratio roughly doubles at each halving:

After the April 2024 halving, Bitcoin's S2F surpassed gold's for the first time, making Bitcoin the "hardest" money by this metric. For context, gold's S2F sits at approximately 60, meaning it would take about 60 years of current mining output to double the existing gold supply. Silver's S2F is roughly 22.

The Cross-Asset Model (S2FX)

In April 2020, PlanB published an updated version called S2FX (stock-to-flow cross-asset model). Rather than using time-series data, S2FX treated Bitcoin at different stages as distinct assets (similar to how silver and gold are treated as separate data points) and grouped them into "phase clusters":

1. Proof of concept (S2F ~1.3)
2. Payments (S2F ~3.3)
3. E-gold (S2F ~10)
4. Financial asset (S2F ~25)

By including gold and silver data points alongside these Bitcoin phases, the S2FX model claimed an R-squared of 99.7%. It projected that Bitcoin would reach a market value of $5.5 trillion during the 2020-2024 cycle, implying a price of approximately $288,000 per coin. This prediction has not materialized.

Why It Matters

Regardless of its predictive accuracy, the stock-to-flow model introduced an important conceptual framework: quantifying proof-of-work scarcity in economic terms. It helped articulate why Bitcoin's fixed emission schedule and predictable supply reduction are fundamentally different from fiat currencies or even commodities like silver, where production can increase in response to price.

The model remains widely referenced in discussions about halving economics and Bitcoin's long-term value proposition. Understanding S2F helps contextualize why halvings generate market attention and how Bitcoin's difficulty adjustment and fixed supply schedule create a unique monetary asset.

For builders working with Bitcoin infrastructure, including Layer 2 protocols like Spark, the S2F framework underscores why demand for efficient, low-cost Bitcoin transaction layers grows as the base asset becomes scarcer and potentially more valuable.

Criticisms and Limitations

The stock-to-flow model has attracted substantial criticism from statisticians, economists, and market analysts. These critiques go beyond nitpicking: they challenge the model's fundamental validity.

Failed Price Predictions

PlanB publicly predicted Bitcoin would reach $100,000 by the end of 2021. Bitcoin peaked at approximately $69,000 in November 2021 and closed December at roughly $47,000: less than half the predicted value. By June 2022, Bitcoin crashed to $17,600, breaching the model's lower bound for the first time. PlanB initially acknowledged the model was "invalidated" before later arguing it should be judged across complete four-year cycles rather than month by month.

Ignoring Demand Dynamics

The S2F model contains zero variables for demand, adoption, ETF inflows, regulatory changes, macroeconomic conditions, or competing assets. It assumes supply scarcity alone determines price. As critic Nico Cordeiro (CEO of Strix Leviathan) noted in June 2020, this is like predicting a home's value based solely on how many houses are built each year, ignoring location, condition, and buyer interest.

Spurious Correlation

Multiple statisticians have demonstrated that the model's high R-squared is likely an artifact of comparing two exponentially growing variables over time. In May 2020, researcher Marcel Burger showed that random data (including "toilet visit frequency") achieved comparable R-squared values when regressed against Bitcoin's market cap: a clear sign of spurious correlation.

Another fundamental issue: supply appears on both sides of the equation. Market capitalization equals price multiplied by supply, and S2F equals supply divided by flow. This mathematical overlap inflates the apparent correlation without implying any causal relationship.

Gold Contradicts the Model

Gold's own price history undermines the S2F thesis. Gold has maintained a relatively stable S2F of approximately 60 for decades, yet its market capitalization has ranged from $60 billion to over $9 trillion across 115 years of data. If S2F reliably predicted value, gold's price should have remained far more stable.

Convergence Toward Absurdity

As Bitcoin's flow approaches zero with each successive halving, the S2F ratio trends toward infinity. Applied literally, the model would project each Bitcoin to be worth hundreds of billions of dollars by the 2040s. This mathematical property reveals a structural flaw: the model breaks down as flow diminishes, producing increasingly unrealistic projections.

S2F as One Tool Among Many

The stock-to-flow model is best understood as a conceptual lens rather than a predictive instrument. It usefully quantifies Bitcoin's unique supply dynamics and helps explain why halving events draw market attention. But treating any single-variable model as a price oracle ignores the complex interplay of market forces, adoption curves, regulatory shifts, and macroeconomic cycles that ultimately determine asset prices.

Investors and analysts typically use S2F alongside other frameworks: on-chain metrics, network value-to-transactions ratios, hashrate trends, and traditional financial analysis. No single model captures the full picture of Bitcoin's value dynamics.

This glossary entry is for informational purposes only and does not constitute financial or investment advice. Always do your own research before using any protocol or technology.