Bitcoin and the Stock-to-Flow Model: How Scarcity Drives the Value of Digital Assets

Since its inception in 2009, Bitcoin has become the most representative cryptocurrency asset worldwide, breaking the boundaries of traditional currency forms. However, to understand Bitcoin’s long-term value proposition, many analysts and investors turn to a compelling theoretical framework—the Stock-to-Flow model. Originating from commodity market analysis, the stock-to-flow model has now become an important tool for predicting Bitcoin price trends. This article will delve into the core principles of this model, its practical applications, and its real-world value in today’s market.

Stock-to-Flow Model: A Mathematical Framework for Understanding Bitcoin Scarcity

The stock-to-flow model is fundamentally a method for quantifying the scarcity of a commodity. Initially used to assess the value basis of precious metals like gold and silver, it has been applied to Bitcoin analysis.

The model’s core consists of two key parameters:

Stock refers to the total existing supply available in the market—in Bitcoin’s case, the total number of mined Bitcoins.

Flow represents the rate at which new supply enters the market, typically measured by annual new mining output.

The stock-to-flow ratio is calculated by dividing stock by flow, serving as an indicator of scarcity. A higher ratio indicates that the amount of new supply relative to existing stock is smaller, implying greater scarcity. Historically, gold’s high stock-to-flow ratio has made it the most scarce precious metal, underpinning its long-term store of value.

Scarcity and Cost: How the Model Explains Bitcoin’s Value Proposition

Bitcoin’s design incorporates a fixed supply cap of 21 million coins, giving it a deflationary characteristic similar to precious metals—this is precisely the core value that the stock-to-flow model emphasizes.

Every four years, Bitcoin undergoes a halving event, reducing the number of newly mined coins by half, which directly decreases the flow component. Meanwhile, the stock (total mined Bitcoins) continues to grow slowly. This dynamic causes the stock-to-flow ratio to increase over time, theoretically enhancing Bitcoin’s scarcity premium.

Proponents argue that this mechanical reduction in supply aligns with the natural scarcity of gold: the more limited the supply, the greater the price pressure when market demand remains constant.

Halving Events and Liquidity Changes: What Do Historical Data Show?

Bitcoin’s halving events occurred in 2012, 2016, and 2020, each triggering significant price reactions historically. Creators of the model, such as PlanB, and other analysts note that Bitcoin’s price tends to experience an upward trend following these halvings.

In November 2021, Bitcoin surpassed a high of around $69,000, despite subsequent corrections, it maintained relatively high levels. As of February 2026, Bitcoin’s price stood at approximately $67,050, indicating ongoing market recognition of its long-term value. Historical data suggest a correlation between halving cycles and price performance, though this relationship is not strictly linear.

However, it’s important to recognize that past performance does not guarantee future results. The Bitcoin market has evolved into a complex ecosystem, with price drivers influenced by many variables beyond supply mechanics.

Key Variables Affecting the Stock-to-Flow Prediction

Beyond the mechanical reduction in supply, numerous factors influence the actual predictive power of the stock-to-flow model:

Adoption Dynamics — The evolving use of Bitcoin as a means of payment or store of value directly impacts demand. Institutional participation, retail growth, and payment integrations can reshape demand curves.

Regulatory Environment — Changes in government attitudes toward cryptocurrencies—from bans to regulation to potential acceptance—significantly affect market sentiment and investor confidence. Strict policies may suppress demand, while friendly regulations could stimulate it.

Technological Innovation — Developments like the Lightning Network and protocol improvements can expand Bitcoin’s use cases, influencing its long-term demand.

Market Sentiment and Macroeconomics — Global economic cycles, inflation expectations, monetary policy, and investor psychology within the crypto space all exert pressure or support on Bitcoin’s price.

Competitive Pressure — Although Bitcoin remains dominant, the growth of Ethereum and other tokens, along with innovative applications, may divert investment attention.

Comparing Model Predictions with Reality: How Accurate Are They?

Notable predictions from the stock-to-flow model include PlanB’s forecast that Bitcoin could reach about $55,000 during the 2024 halving and an extreme prediction of nearly $1 million by 2025. Institutions like ARK Invest have also projected Bitcoin reaching $1 million around 2030.

In terms of data, the model has shown impressive correlation during certain cycles. Bitcoin’s price charts reveal that, over the medium to long term, the trajectory aligns reasonably well with the model’s predicted curves, especially in the periods surrounding halvings.

However, the accuracy is not consistent. The model has failed to precisely predict all short-term fluctuations and has sometimes given overly optimistic forecasts in extreme scenarios. This underscores the inherent limitations of relying on a single model.

Expert Opinions: Support and Criticism

There is significant debate within the industry regarding the value of the stock-to-flow model.

Supporters — Adam Back, CEO of Blockstream, believes that while the model is a reasonable fit to historical data, its underlying logic—that reduced supply increases scarcity and thus drives prices higher—is sound and aligns with basic economic principles of commodities.

Critics — Vitalik Buterin, co-founder of Ethereum, openly dismisses the model as “not very good” and calls its predictions “harmful.” He points out that the model’s oversimplification of supply and demand dynamics and its linear forecasting approach have fundamental flaws.

Trader Alex Kruger also questions the predictive validity of the model, stating that relying solely on the stock-to-flow ratio to forecast future prices is “meaningless.” Similarly, Cory Klippsten of Swan Bitcoin warns that the model could mislead followers into making poor investment decisions.

Nico Cordeiro of Strix Leviathan questions the model’s assumptions at a deeper level, arguing that overemphasizing scarcity neglects demand-side complexities and evolving market structures.

How Should Investors Use This Model

Despite its limitations, the stock-to-flow model can still offer value for certain types of investors. The key is understanding its scope and applying it appropriately:

First, understand the core premise — it attempts to quantify how scarcity impacts asset value. While this insight can be useful for long-term investors, it should not be the sole basis for decisions.

Second, verify historically — examine how the ratio’s changes during past halving cycles correlated with actual price movements. Recognize that while historical correlation exists, it is imperfect and future deviations are possible.

Third, combine multiple analyses — integrate the stock-to-flow model with technical analysis, fundamental assessments, and market sentiment indicators. No single tool should drive major investment decisions.

Fourth, monitor external factors — stay informed about regulatory developments, technological progress, macroeconomic signals, and shifts in market participant structures, as these can alter Bitcoin’s valuation more rapidly than supply mechanics alone.

Fifth, prioritize risk management — even if you believe in the scarcity thesis, set clear risk controls: position sizing limits, stop-loss orders, and contingency plans for extreme scenarios.

Sixth, adopt a long-term perspective — the predictive value of the stock-to-flow model is more relevant over years rather than days or weeks. It is not suitable for short-term trading.

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

While the model has garnered widespread attention, its fundamental flaws warrant careful consideration:

Neglect of external factors — it focuses mainly on supply-side mechanics, severely underestimating demand-side complexities. Technological breakthroughs, policy shifts, economic crises, and market structure changes can have a more profound impact on prices.

History ≠ Future — Bitcoin has transitioned from an early-stage asset to a relatively mature market. Changes in participant composition, trading mechanisms, and information flow mean past correlations may no longer hold.

Overreliance on a single variable — even if scarcity influences Bitcoin’s value, relying solely on the stock-to-flow ratio is risky. Utility, network effects, and payment functions also contribute significantly to its valuation, yet are ignored in the model.

Forecasting risks and potential misguidance — extreme predictions (e.g., $1 million targets) are often unrealistic, risking investor disillusionment or impulsive decisions.

Lack of dynamic adaptation — the model extrapolates from historical relationships, but market dynamics are constantly evolving. The same ratio may correspond to very different prices in different environments.

Summary and Future Outlook: The Role of the Model Moving Forward

The stock-to-flow model undoubtedly offers an intriguing perspective on Bitcoin’s scarcity. It highlights the importance of supply mechanisms and provides a quantifiable framework for those who believe in scarcity-driven valuation.

However, overreliance on any single model is dangerous. Bitcoin’s future price will be shaped by a complex interplay of factors—including technological advances, regulatory attitudes, macroeconomic conditions, competitive developments, and market psychology.

For investors, the model can serve as one tool among many, but it should be combined with other analyses and approached with a clear understanding of its limitations. In the volatile crypto landscape, humility and multi-dimensional thinking are often more valuable than any single theoretical framework.

Frequently Asked Questions

Q1: How does the stock-to-flow model estimate Bitcoin’s price targets?
A: It calculates Bitcoin’s stock-to-flow ratio and extrapolates based on historical relationships between this ratio and price. Higher ratios (indicating greater scarcity) suggest higher predicted prices, but this mechanical projection has clear limitations.

Q2: How accurate has the model been in predicting Bitcoin’s past prices?
A: It has shown good correlation during certain cycles, especially in medium to long-term trends and around halving events. However, it has not predicted all market turns precisely and sometimes overestimates short-term movements.

Q3: How will future halving events influence the stock-to-flow model’s predictions?
A: Each halving increases the stock-to-flow ratio, theoretically boosting scarcity premiums. Nonetheless, actual market prices depend on demand, market structure, macro factors, and investor sentiment, not supply mechanics alone.