In-depth Analysis of the Stock-to-Flow Model: Unlocking the Bitcoin Value Code

Since its inception in 2009, Bitcoin has become a “scarce asset” in the eyes of investors due to its unique identity as a digital currency. Among many analytical frameworks, the Stock-to-Flow (S2F) model has gradually become a reference tool for long-term holders because of its ability to interpret Bitcoin’s value. Currently, BTC is priced at $87.15K, still with room for adjustment from its all-time high of $126.08K, which has sparked a reevaluation of valuation models in the market.

What is the Stock-to-Flow model? Explained in one sentence

The Stock-to-Flow model is essentially a tool to measure the scarcity of a commodity. Specifically:

• Stock: The total amount of Bitcoin issued and in circulation
• Flow: The number of new Bitcoins mined each year

A higher ratio indicates greater scarcity of new supply and, theoretically, greater potential value. This logic has long been validated in precious metals markets, and when applied to Bitcoin, the core logic remains the same.

How do Bitcoin’s halving events drive the S2F ratio?

Bitcoin’s halving every four years is key to understanding the stock-to-flow model. Halving events cut the miner rewards in half, directly reducing the Flow (new coin issuance), thereby increasing the S2F ratio. This means new Bitcoins become more scarce, and according to the model, this should push prices higher.

Historical data confirms this: after previous halvings, Bitcoin experienced significant price surges. However, it’s important to note that past performance does not guarantee future results.

Limitations of the Stock-to-Flow model

Although the S2F model has its rationality, it also faces criticism:

1. Over-simplification of supply and demand dynamics
The model focuses solely on supply scarcity, ignoring the complex changes on the demand side. Bitcoin’s price is influenced by regulatory policies, market sentiment, macroeconomic factors, and more, which cannot be explained solely by scarcity.

2. Weak short-term predictive power
While the model has some reference value for describing long-term trends, its ability to explain short-term fluctuations is limited. Traders relying solely on this model may easily fall into traps.

3. External shocks
Technological upgrades (like Lightning Network adoption), policy shifts, threats from competing coins, global economic cycles—all can disrupt the model’s predictions.

4. Information asymmetry
Retail investors overly relying on a single model’s forecast may develop irrational expectations like “price should reach $1 million,” ultimately suffering losses amid market volatility.

How to use the Stock-to-Flow model for investment decisions?

If you believe in the logic of the S2F model, here are practical suggestions:

Step 1: Understand historical correlations
Review past Bitcoin price movements against S2F ratio trends. While not highly precise, it helps gauge the model’s applicability and failure points.

Step 2: Avoid putting all eggs in one basket
Combine technical analysis indicators, fundamental analysis (adoption rate, activity levels), and market sentiment indices to form a multi-dimensional decision framework. Relying on a single tool is never enough.

Step 3: Define your investment horizon
The S2F model is more suitable for long-term holders. If you’re a day trader, this model offers limited help. For holdings of 3 years or more, it can serve as a reference.

Step 4: Actively manage risk
Set clear stop-loss levels, allocate positions reasonably, and avoid over-leveraging based solely on optimistic predictions from the model. At the current price of $87.15K, maintaining cautious risk awareness is especially important.

Step 5: Continuously monitor market changes
Crypto markets are highly volatile. Regularly review your strategy and adjust based on new policies, technological developments, or economic data. Don’t be bound by fixed thinking.

What do experts think about the Stock-to-Flow model?

• Supporters: Blockstream CEO Adam Back considers the S2F model reasonable, as it fits historical data well; halving indeed increases scarcity.
• Critics: Ethereum co-founder Vitalik Buterin criticizes the model as “not very reliable” and “harmful”; renowned trader Alex Krüger calls its forecasting method “absurd”; Strix Leviathan investment director Nico Cordeiro questions the model’s assumptions as overly tenuous.

Such disagreements are normal and reflect the model’s inherent limitations.

Can we trust it or not?

Partially trustworthy:

• Bitcoin supply indeed exhibits decreasing characteristics
• Halving events have changed supply dynamics
• Long-term holders can use it as one of the reference frameworks

Not trustworthy for:

• Precise short-term predictions
• Fully attributing price movements to scarcity
• Ignoring demand-side factors and external shocks

Final advice

The Stock-to-Flow model is like a telescope—it can help you see the distant direction clearly but cannot tell you what traps are under your feet. The current BTC price of $87.15K still has distance from its all-time high, which precisely indicates that market factors are far more complex than a single model.

If you are a long-term Bitcoin enthusiast, you can use S2F as a reference; but always remember, no single tool guarantees investment success. Multi-dimensional analysis, thorough risk management, and respect for the market are the three essentials of prudent investing.