Stock-to-Flow Model

The stock-to-flow model was originally used for commodities like gold and silver. Gold has a high S2F ratio (~62) because the existing above-ground supply is massive relative to annual mining output, making it extremely scarce. Bitcoin's S2F ratio increases with each halving as new supply is cut in half while existing supply grows.

PlanB (a pseudonymous Dutch institutional investor) published the Bitcoin S2F model in March 2019, which gained enormous popularity. The model plotted Bitcoin's market cap against its S2F ratio and fit a power-law regression that appeared to predict price with remarkable accuracy through 2020. Post-2020 halving, the model predicted Bitcoin would reach $100,000 by end of 2021.

The model's credibility took a significant hit when Bitcoin peaked at approximately $69,000 in November 2021 before crashing to $15,500 in late 2022 — significantly below the model's predictions. According to the model's own framework, Bitcoin should have traded between $100,000-$288,000 during this period, a miss of 50-80%.

Critics, including Ethereum co-founder Vitalik Buterin, argue that S2F conflates correlation with causation and ignores demand-side factors entirely. A model based purely on supply reduction cannot account for regulatory changes, macroeconomic shifts, competing assets, or changes in investor sentiment. Academic analysis by Coinmetrics in 2023 found that the model's statistical fit was largely driven by the coincidence of Bitcoin's early growth curve overlapping with its emission schedule.

While the S2F model remains conceptually useful for understanding scarcity dynamics, it should not be used as a price prediction tool. Its primary value is illustrating how Bitcoin's programmatic supply reduction differs from inflationary fiat currencies and other crypto assets.