The Stock-to-Flow Model: The Tool That Revolutionized Bitcoin Valuation

Since Bitcoin was launched in 2009 as the first fully decentralized digital currency, investors have sought reliable methods to understand its price trajectory. Among various analytical tools, stock to flow has emerged as one of the most debated frameworks for assessing Bitcoin’s future value. This model, which measures the relationship between existing supply and new production, offers a unique perspective based on a fundamental principle: scarcity.

What is stock to flow and how did it emerge in Bitcoin analysis?

Stock to flow (S2F) is a metric originally used to analyze precious metals like gold and silver. Its application to Bitcoin represents a paradigm shift in how analysts evaluate cryptocurrencies. The metric works through a simple yet powerful calculation: dividing the total stock (the accumulated amount of Bitcoin that exists) by the flow (the amount of new Bitcoin created annually).

While the concept is straightforward, its implications are profound. A high stock to flow ratio indicates that an asset is particularly scarce. Historically, precious metals with high S2F ratios have proven to be more valuable and resilient during economic crises. PlanB, the creator of the S2F model for Bitcoin, used this logic to build a predictive framework linking Bitcoin’s scarcity to its future price.

The model’s popularity grew especially after 2020, when initial S2F predictions appeared to align with Bitcoin’s actual price movements. In November 2021, when Bitcoin surpassed $69,000, many believed the model had demonstrated its validity.

The mechanism of stock to flow: Why is halving crucial?

To understand how stock to flow works in Bitcoin, it’s essential to grasp the role of halving events. Bitcoin is programmed to undergo a halving approximately every four years, where mining rewards are cut in half. This automatic event is what fundamentally differentiates Bitcoin from other assets.

When a halving occurs, the flow (the annual production of new Bitcoin) decreases significantly. If demand remains steady or increases while new supply reduces, the stock to flow ratio increases dramatically. According to the model’s theory, this increase in ratio should correlate with a proportional rise in price.

The maximum supply cap of 21 million Bitcoin introduces a unique deflationary aspect. Unlike traditional currencies that can be printed indefinitely, Bitcoin becomes mathematically scarcer with each halving. This structural feature underpins the premise of the model.

However, reality has proven to be more complex. While some halvings have preceded significant rallies in Bitcoin’s price, others have not produced the expected impact. Mining difficulty also adjusts automatically every two weeks, which can influence the speed of new Bitcoin creation, adding another layer of complexity to the flow calculation.

Factors that alter the dynamics of stock to flow beyond halving

Although halving is the most visible factor affecting the stock to flow ratio, numerous variables can alter the supply and demand relationship for Bitcoin. These external factors are precisely what critics of the model point out as fundamental weaknesses.

Institutional adoption has emerged as a key factor. When large investment funds, corporations, and governments begin to consider Bitcoin as a strategic asset, demand can scale independently of the S2F ratio. Market sentiment also plays a crucial role, influenced by geopolitical news, regulatory decisions, and global economic conditions.

Technological advancements in the Bitcoin network, such as scalability and security improvements, can strengthen its utility beyond a store of value. Competition from other cryptocurrencies, especially those with superior technical features, can fragment demand. Government regulations can accelerate or hinder adoption depending on their stance.

Additionally, inflation and monetary devaluation can increase demand for Bitcoin as a hedge, while expansive economic cycles might reduce its relative attractiveness. Cryptocurrency sentiment, driven by future expectations and speculation, can become completely detached from the fundamentals of the stock to flow model.

Empirical evidence: Does stock to flow really work?

The historical performance of the stock to flow model presents a mixed picture that requires careful analysis. During the period 2011-2021, the model appeared to maintain a notable correlation with Bitcoin’s price movements, especially around halving events. PlanB’s predictions of prices between $55,000 and $100,000 in specific cycles gained credibility when Bitcoin indeed reached all-time highs.

However, as Bitcoin matured as a market, the model’s predictive validity has been questioned. Ethereum co-founder Vitalik Buterin has been particularly critical, arguing that the model “really doesn’t look good now” due to potentially misleading predictions. His critiques point out that the linear approach of the model does not capture the dynamic complexity of crypto markets.

Adam Back, CEO of Blockstream and a prominent figure in Bitcoin, offers a more nuanced perspective. He acknowledges that the stock to flow ratio provides a reasonable curve fitting the historical data, suggesting that halvings should logically drive prices higher. However, this view does not imply that the model is consistently predictive.

Other experts like Cory Klippsten of Swan Bitcoin and trader Alex Krüger have expressed significant reservations, arguing that the model can mislead novice investors by oversimplifying market dynamics. Nico Cordeiro of Strix Leviathan has directly questioned whether scarcity should be the sole determinant of Bitcoin’s value.

Current performance: Stock to flow in 2025-2026

With Bitcoin currently trading around $67,880 (as of February 20, 2026), the stock to flow model warrants reevaluation. The previous maximum of $126,080 suggests Bitcoin has experienced considerable volatility since earlier cycle highs.

Optimists argue that the model remains relevant for long-term analysis, especially considering Bitcoin has not yet reached the previously predicted highs in this cycle. Skeptics, on the other hand, point out that the recent inaccuracies in predictions highlight the inherent limitations of a scarcity-focused approach.

The halving in 2024 did not produce the explosive rally some S2F adherents anticipated, leading to further criticism of the model’s validity. This discrepancy between theory and reality is crucial for investors seeking to use the model as a decision-making tool.

How to responsibly use stock to flow in your investment strategy

While the stock to flow model has shown merit as a conceptual framework, its practical usefulness depends on how it is integrated into a broader strategy. Long-term investors who do not require short-term precision may find value in a scarcity-based approach.

Essential steps to effectively incorporate S2F:

First, deeply understand what the model measures. It is not a pure price prediction but a tool that quantifies Bitcoin’s relative scarcity over time. Second, carefully analyze historical data, observing not only matches but also divergences between the model and actual price.

Third, use stock to flow as part of a diversified strategy that includes technical analysis, fundamental metrics, and sentiment evaluation. Investors relying solely on S2F risk missing critical market signals.

Fourth, stay informed about regulatory developments, technological advancements, and macroeconomic conditions that can override any signals from the model. Fifth, establish clear risk management protocols with defined stop-loss orders and controlled position sizes.

Sixth, adapt your perspective to your investment horizon. The model is more reliable for five- to ten-year investors than for traders with weekly or monthly cycles. Finally, periodically review your strategy as new data and market conditions emerge.

Fundamental limitations of stock to flow you should know

Despite its popularity, the stock to flow model has conceptual restrictions that investors must fully recognize.

First limitation: The model focuses on scarcity, ignoring external variables. Although Bitcoin has a limited supply, its value also depends on utility, adoption, trust, and actual demand. Scarcity alone does not guarantee value if there is no desire for the asset.

Second limitation: Past performance does not imply future predictability. Bitcoin operated in a smaller, less mature market during earlier cycles. With more developed markets, institutional participants, and established regulatory regimes, the dynamics have fundamentally changed.

Third limitation: The model assumes scarcity is the dominant factor, overlooking how technological innovation—such as the Lightning Network—expands Bitcoin’s utility beyond a store of value. These advances could influence demand in ways that S2F does not capture.

Fourth limitation: The risk of misinterpretation is significant. Novice investors may make poor decisions based on simplified predictions that have not consistently materialized. The model requires sophistication to be used correctly.

Fifth limitation: The model does not distinguish between sustained bull cycles and speculative volatility. A 20-30% price correction can occur with a rising stock to flow ratio, creating confusion for those expecting perfect correlations.

Final reflection: Stock to flow in an evolving market

The stock to flow model remains a valuable tool for thinking about Bitcoin, but it should be considered within a broader context. Its ability to predict future prices continues to be limited, as demonstrated by recent market cycles.

Bitcoin’s future will likely be shaped by a complex interplay of factors: demand dynamics driven by institutional adoption, technological innovations expanding utility, regulatory frameworks establishing legitimacy, and macroeconomic cycles determining whether Bitcoin acts as an inflation hedge.

For serious investors, the lesson is clear: while stock to flow offers interesting insights into Bitcoin’s scarcity, no single model should dictate investment decisions. The maturation of crypto markets requires multidimensional analysis that recognizes both underlying principles and the complex realities of the modern market.