The Bitcoin Stock-to-Flow (S2F) Model: A Comprehensive Guide

Key Takeaways

• The Bitcoin Stock-to-Flow (S2F) model estimates the long-term price movement of BTC by calculating its scarcity over time. 
• The model is closely tied to Bitcoin halving events, which reduce the rate of new Bitcoin issuance and increase the S2F ratio, often aligning with historical price surges post-halving.
• Traders use the S2F model to identify macro accumulation zones, anticipate halving-driven bull cycles, and set realistic long-term price targets.
• While historically insightful, the model has limitations, such as ignoring demand shifts, relying on simplified inputs, and occasionally deviating from real-world prices.

Imagine you’d known back in 2011 that Bitcoin would be worth nearly $80,000 today. Back then, the world’s first cryptocurrency came at less than $1 per coin. Traders and investors are always looking for effective methods to gauge the market and predict future prices, Bitcoin is no exception. One popular approach is the Bitcoin stock-to-flow (S2F) model, a framework that uses scarcity to estimate Bitcoin’s potential price. 

But what exactly is the Bitcoin S2F model – and is it accurate? In this article, we’ll explore how the Bitcoin S2F model works, why it matters, and how traders can use it to navigate the crypto market.

What is the Bitcoin Stock-to-Flow (S2F) Model?

The Bitcoin stock-to-flow model is a method that uses Bitcoin’s scarcity as a metric to make predictions about its price potential. In this model ratio is represented as a number, with a higher ratio indicating greater scarcity – and therefore greater price potential. 

Originally used in commodities like gold and silver, this model was first adapted for Bitcoin by a mysterious degen by the name of “Plan B”. 

Plan B introduced the stock-to-flow model in 2019 and so far, the price prediction set by the model has largely coincided with Bitcoin’s trajectory. Consequently, Plan B has gathered a huge following and continues to make bold predictions about the future price of Bitcoin. Despite this, the former quantitative researcher remains anonymous.

How Does the Bitcoin Stock-to-Flow Model Work?

The Bitcoin S2F ratio is achieved by dividing the total circulating supply (stock) by the annual production (flow). The resulting number indicates how many years it would take to produce the current supply at the existing rate – this is used as a shorthand for its level of scarcity.

To understand how the Bitcoin stock-to-flow model works, we’ll have to explore its two main components  in more detail:

• Bitcoin S2F Stock: The stock represents the Bitcoin supply that is currently circulating. For example, at the time of writing, this is approximately 19.84 million Bitcoins.
• Bitcoin S2F Flow: The flow takes into account the rate at which new Bitcoins enter circulation through mining. Currently, every 10 minutes, 3.125 Bitcoins enter the market.

While the stock to flow approach can be applied to many different assets, Bitcoin is something of an anomaly because of its programmed ‘halving’ cycle. Roughly every four years, the number of new Bitcoin per block decreases decrease by half.

After the latest halving on 20 April 2024, block rewards dropped from 6.25 to the current 3.125 BTC per block. This pre-programmed halving makes Bitcoin unique when compared to other existing non-digital assets.

For example, according to the S2F model, Bitcoin’s price could reach over a million dollars by the end of 2028, since its “stock” is constantly increasing while the “flow” periodically declines.

Bitcoin Halving Chart and Stock-to-Flow Relationship

The Bitcoin halving chart tracks the schedule of past and future halving events, showing when the block reward cuts in half. This chart is foundational to the S2F model, as each halving reduces the flow of new Bitcoins by 50%.

Together, these tools help traders understand Bitcoin’s supply dynamics and potential price trends.

Why is the Stock-to-Flow Model Useful for Bitcoin Traders?

For Bitcoin traders and long-term investors, the stock-to-flow model offers a framework for anticipating macro trends. While it doesn’t account for short-term volatility, it gives a big-picture view that can inform strategic decision-making. This is because it:

• Suggests price trajectory: The chart shows past price movement relative to scarcity, which could highlight patterns for the future.
• Informs timing: Helps traders anticipate post-halving price movements.
• Assists in risk management: Offers a baseline for fair value estimation.
• Builds long-term conviction: Provides perspective beyond daily price noise.

Because of Bitcoin’s fixed supply, traders often look to models like S2F for guidance during major cycles and market uncertainty.

What Other Data Does the Stock-to-Flow Model Use?

Beyond the basic supply and issuance metrics, the model occasionally incorporates:

• Historical price data: To track how well Bitcoin has followed the predicted trend.
• Color-coded cycle indicators: Some visualizations show proximity to the next halving.
• Market phase overlays: These can indicate whether Bitcoin is undervalued or overvalued relative to its S2F curve.

These elements help enrich the model’s interpretation, making it more than just a single-line projection.

How To Use the S2F Model in Your Bitcoin Trading

While the S2F doesn’t offer direct trading signals, it provides a useful framework for planning trades and investments. Through it, traders can:

Identify Macro Accumulation Zones

Investors can use the S2F chart to determine when Bitcoin is trading below its projected value. These zones often represent good opportunities for accumulation.

Anticipate Halving-Driven Market Cycles

Because halvings are scheduled, traders can prepare ahead of time. The model can help anticipate when the market might enter a new bullish phase.

Set Realistic Long-Term Targets

The S2F model provides an upper range of expected prices. While not guaranteed, it can help set grounded expectations for future price movements.

Strengthen Portfolio Confidence

When markets are volatile, the model’s long-term outlook can help with a trader’s strategy by reducing emotional trading decisions.

How Accurate Is the Bitcoin Stock-to-Flow Model?

The Bitcoin stock-to-flow model has been relatively accurate in predicting broad price trends, particularly in the years following past halvings. However, there have been some notable – and pretty significant – exceptions.

In 2021, for example, Bitcoin’s price temporarily deviated from the S2F curve, leading some to question its ongoing validity.

Limitations and Risks of the BTC Stock-to-Flow Model

While the model is popular, it’s far from perfect. Traders should take notice of several risks and limitations such as:

• Ignores demand-side variables: Assumes demand remains constant or increases.
• Simplistic inputs: Only considers supply metrics, not macroeconomic trends.
• Deviation risk: Prices can diverge for extended periods due to external shocks.
• Overreliance: Using S2F as the sole indicator can lead to poor trading decisions.
• Not universally accepted: Critics argue its logic is flawed in efficient markets.

As with many other models, stock-to-flow shines when combined alongside different tools and indicators.

Closing Thoughts

The Bitcoin stock-to-flow model is one of the most compelling tools for long-term Bitcoin price analysis. By focusing on scarcity, it taps into a key economic principle, and while not foolproof, its historical alignment with Bitcoin’s price movements has given it credibility. 

Finally, traders should treat the S2F model as part of a wider arsenal in a well-rounded trading strategy.

About the author

Tasho Tashev

Tasho is a passionate enthusiast of all things blockchain, Web3 and cryptocurrency. With a keen interest in the cutting-edge intersection of technology and entertainment, he loves sharing stories that inform and inspire.

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