Analyzing the Stock-to-Flow Ratio: An Indispensable Tool for Bitcoin Price Prediction

Bitcoin, born in 2009, ushered in a new era for the decentralized digital economy. Since then, this leading cryptocurrency has experienced multiple market cycles with peaks exceeding $69,000 and deep troughs. This volatility makes Bitcoin price forecasting extremely complex, and investors need a reliable analytical tool. The Stock-to-Flow model is a solution many experts use to make long-term trend predictions for BTC prices.

What is Stock-to-Flow and why is it important for Bitcoin?

The basic concept of Stock-to-Flow originates from the analysis of scarce commodities, where stock represents the current inventory and flow is the annual new production. The higher the S2F ratio, the rarer the asset.

Famous trader PlanB adjusted this model to apply to Bitcoin, creating the Bitcoin Stock-to-Flow ratio—a quantitative indicator of the relationship between the total circulating supply of BTC and the amount of Bitcoin newly issued each year.

The calculation is very simple:

• S2F = Total BTC in circulation / New BTC issued annually

What’s special about this model is that it allows estimating how long it takes to produce the current amount of Bitcoin at the current mining rate, thus inferring a corresponding price.

How does the Stock-to-Flow Ratio influence Bitcoin’s price?

This model operates based on a highly linear principle: Bitcoin’s price will increase as the S2F ratio rises. Historical data shows that whenever this ratio hits new highs, BTC price tends to increase about 10 times over the next four-year cycles.

Bitcoin halving is a key event directly impacting the model. Every 4 years, the mining reward for BTC is halved—meaning the new Bitcoin issuance drops by 50%, causing the S2F ratio to spike. According to PlanB’s model, the halving event in April 2024 is forecasted to push Bitcoin’s price to around $40,000 - $50,000, and subsequently continue to rise sharply to just below $500,000 by 2025.

Currently, Bitcoin is trading at $88.56K, reflecting market adjustments and complex factors.

The accuracy of the model in practice

Looking at historical charts, it’s evident that Bitcoin’s price has closely followed the Stock-to-Flow forecast path with significant consistency. Long-term investors particularly value this stability, as they are less concerned with daily fluctuations and focus on overall trends.

However, this does not mean the model is perfect. It’s merely an analytical tool that should be combined with other factors.

Limitations that cannot be ignored

Although the stock-to-flow ratio has proven effective in the past, it still has clear weaknesses:

• Ignores fundamental factors: The model only considers scarcity, overlooking regulatory announcements, technological developments, or major news.

• Overlooks unexpected events: “Black swan” events (black swan), macroeconomic crises, or shifts in market sentiment can completely disrupt this linear model.

• Not effective for short-term trading: Its long-term nature makes it less useful for traders seeking quick opportunities.

What do expert communities say?

Not everyone trusts this model. Adam Back (Blockstream) believes S2F remains within an acceptable margin of error. Vitalik Buterin criticizes the model but notes that lack of correlation may not be enough to dismiss it entirely. Meanwhile, Alex Krüger and other experts consider using S2F to predict future prices as lacking scientific basis.

How to use the Stock-to-Flow Ratio wisely

To leverage this model effectively, you should:

1. View it as part of a comprehensive strategy: Combine S2F with technical analysis, fundamental analysis, and market sentiment evaluation.

2. Apply it for long-term investments: The model works best when you have a horizon of 2-4 years or longer.

3. Avoid relying solely on one tool: Historical accuracy does not guarantee future precision. Always prepare for unforeseen scenarios.

Conclusion

The Stock-to-Flow ratio has proven to be a useful tool in a Bitcoin investor’s toolkit, especially for those adopting long-term strategies. However, it is not a magic bullet. Combining this model with other indicators and a deep understanding of the market will help you build a more robust investment strategy. Bitcoin remains an asset that is difficult to predict, and caution should always be exercised when using any forecasting model.