Bitcoin Stock-to-Flow Model: Will Scarcity Help Retain BTC’s Long-Term Value?

The cryptocurrency market is in its infancy and experiencing high growth. Due to its novelty, investors and traders have been looking for long-term valuation models to determine the appropriate prices for Bitcoin and other cryptos. Since Bitcoin’s total supply is limited and predicted to be mined out by 2140, one can’t help but wonder if Bitcoin’s price will continue to rise due to its absolute scarcity. One such quantitative model called the stock-to-flow model measures the Bitcoin value and predicting Bitcoin’s price over an extended period. 

We’ll look at what the stock-to-flow model is and make a comparison between the stock-to-flow of both Bitcoin and gold. Then, we’ll unpack a model that incorporates the stock-to-flow ratio for Bitcoin and predicts its price. Lastly, we’ll discuss some problems that may prevent this model from being an accurate predictor of Bitcoin’s future.

What Is the Stock-to-Flow Model? 

Stock-to-flow is an investment model that measures an asset’s current stock against the rate of production or the total amount mined over the course of a year. Stock-to-flow is used to compare the relative abundance or scarcity of a particular resource.

In theory, if a resource is more scarce — for instance, precious metals such as gold, silver or platinum — then it’s likely to be a better store of value, meaning that it should retain its value and purchasing power over the long term. Beyond natural resources, other commodities such as real estate, stocks and bonds have traditionally been used as stores of value, too.