What is the Bitcoin stock-to-flow model?

The stock-to-flow (S2F) model, popularized by the pseudonymous analyst PlanB in 2019, applies a framework from commodity analysis to Bitcoin valuation. The "stock" is the total existing supply of Bitcoin (approximately 19.5 million coins as of 2024), and the "flow" is the annual new production (currently around 164,000 coins per year at the post-2024-halving rate). The S2F ratio is stock divided by flow, and PlanB's model claims a strong statistical relationship between this ratio and Bitcoin's market capitalization.

The model's appeal was amplified by Bitcoin's halving events, which cut the flow in half approximately every four years. Each halving increases the S2F ratio, which, according to the model, should drive the price dramatically higher. PlanB's original model predicted Bitcoin would reach $100,000 by the end of 2021 (it peaked at $69,000 in November 2021 before crashing) and implied much higher prices in subsequent cycles. The model went viral on crypto Twitter and influenced many investors' expectations and positioning.

The fundamental critique is that the S2F model conflates scarcity with value. Many things are scarce but not valuable. The model implies that Bitcoin's price is determined solely by supply-side scarcity, ignoring demand entirely. In reality, Bitcoin's price is determined by the intersection of supply and demand, and demand is influenced by macro conditions, regulatory developments, institutional adoption, competing assets, and speculative sentiment. The model also suffers from statistical issues: fitting a power-law regression to a small number of data points from a single asset's history does not constitute a robust empirical relationship.

By 2023 and 2024, the S2F model's predictions had significantly diverged from actual prices, leading even some former proponents to acknowledge its limitations. The model predicted prices well above $100,000 by the post-2024-halving period, and while Bitcoin has been volatile, the model's precision has clearly broken down. The S2F model serves as a useful case study in how intuitively appealing narratives about scarcity can be dressed in quantitative clothing but ultimately fail the rigorous scrutiny that genuine financial models must withstand.