BITCOIN STOCK-TO-FLOW (S2F) MODEL

This model views Bitcoin similarly to commodities like gold, silver, or platinum, known as 'store of value' commodities due to their ability to retain value over long periods because of their scarcity. Increasing the supply of these commodities is difficult, as mining is expensive and time-consuming. Bitcoin shares this characteristic as it is scarce and is the first-ever digital object with limited supply. Mining the remaining 3 million coins requires substantial electricity and computing power, ensuring a consistently low supply rate. Stock-to-flow ratios measure the current stock of a commodity (total available amount) against its new production flow (amount mined annually).

For store of value commodities like gold, platinum, or silver, a high stock-to-flow ratio indicates limited industrial consumption, with the majority stored as a monetary hedge, driving up the ratio. A higher stock-to-flow ratio signifies increased scarcity, enhancing the commodity's value as a store of value.
The chart above overlays Bitcoin's price on its stock-to-flow ratio line, showing that Bitcoin's price has historically followed its stock-to-flow. This suggests that by observing the projected stock-to-flow line, derived from the known future Bitcoin mining schedule, we can estimate future price movements.

The colored dots on the price line indicate the number of days until the next Bitcoin halving event. During a halving, the reward for mining new blocks is cut in half, reducing miners' rewards by 50%. These halvings occur every 210,000 blocks, roughly every four years, until the maximum supply of 21 million bitcoins is reached. Halvings increase the stock-to-flow ratio (scarcity), which theoretically drives up the price, as seen in Bitcoin's past.

The stock-to-flow line on the chart includes a 365-day average to smooth out market fluctuations caused by halving events.