Bitcoin Price Forecast: Why the Stock-to-Flow Model Remains a Tool for Long-Term Investors

Context: From Digital Currency to Store of Value

Since its launch in 2009, Bitcoin has evolved from a technological innovation to a global investment tool. As of the end of 2024, the cryptocurrency is trading at $88.77K, demonstrating volatility inherent to assets with limited supply. Its path has been marked by cyclical dynamics of bull and bear markets, creating an urgent need for analytical tools to forecast long-term trends.

Among various analysis methods, the Stock-to-Flow model (S2F) stands out, transferring the principles of assessing scarce commodities to the cryptocurrency market. This methodology assumes that Bitcoin’s value is determined by its scarcity—the ratio between the existing number of coins and their production rate.

Mechanics of the Stock-to-Flow Model: From Theory to Practice

Main Components of the System

The model is based on two fundamental parameters:

Stock (Stock) — the total amount of Bitcoin already mined and in circulation at the moment. With a maximum supply of 21 million coins, this figure is continuously increasing but at a slowing rate.

Flow (Flow) — the annual volume of newly created Bitcoin entering the network through mining. This parameter is key to understanding the dynamics of the asset’s scarcity.

The S2F ratio is calculated by dividing the current stock by the annual flow. Historically, this ratio has increased, especially during halving events—when the mining reward is cut in half approximately every four years. The next halving is expected in 2024, which should theoretically enhance the network’s deflationary characteristics.

Analogy with Precious Metals

Gold has one of the highest Stock-to-Flow ratios among all commodities—making it rare and, consequently, expensive. Proponents of the model believe that Bitcoin, as a digital analog of gold, should follow a similar pricing pattern, where rarity directly correlates with value.

Factors Influencing S2F Dynamics: What Drives Changes

Beyond the scheduled halving, many variables impact the Stock-to-Flow ratio:

Network mining difficulty adjusts roughly every two weeks, affecting the speed of new block creation and, consequently, the coin flow. An increase in network capacity usually raises difficulty, slowing down production.

Regulatory environment significantly influences mining economics. Strict legislation can reduce mining attractiveness, while favorable conditions stimulate expansion.

Adaptation and institutional demand—growth in corporate investments and recognition of Bitcoin as an asset class—increases demand while supply remains stable, positively affecting the ratio.

Technological development—innovations in scalability (including second-layer solutions and the Lightning Network layer)—potentially expand Bitcoin’s utility, influencing investor demand.

Macroeconomic conditions—inflation dynamics, currency devaluations, and financial crises—often boost demand for Bitcoin as a hedging instrument.

Competition from alternative cryptocurrencies may weaken Bitcoin’s dominant position, although this has not significantly happened yet.

Market sentiment is susceptible to media coverage, geopolitical events, and public perception of cryptocurrencies.

Historical Data: How the Model Worked in the Past

Research, notably conducted by the model’s creator PlanB, has shown a significant correlation between S2F dynamics and Bitcoin price movements. The model accurately forecasted major price jumps following previous halvings, demonstrating its capacity for long-term predictions.

The Bitcoin Stock-to-Flow chart shows a consistent alignment of price with the model’s calculated line, except during periods of extreme volatility. Long-term investors ignoring short-term fluctuations note the predictive power of this approach.

However, it is important to remember: past results do not guarantee future success.

Criticism and Limitations: What Skeptics Say

Despite its popularity, the Stock-to-Flow model has faced serious criticism from prominent figures in the ecosystem:

Vitalik Buterin, co-founder of Ethereum, called the model “really not very good” and pointed out its potentially harmful influence due to its simplified approach to demand and supply dynamics.

Analysis experts (including Corey Klippsten from Swan Bitcoin and Alex Krüger) criticize the linear forecasting method and underestimate external market factors.

Key limitations of the model:

1. Ignoring non-financial variables—technological breakthroughs, regulatory shifts, and cultural changes are not considered, although they can fundamentally impact demand.

2. Overemphasis on scarcity—the model assumes that scarcity automatically leads to price growth, without considering actual utility and demand.

3. Failed forecasts—the model did not predict the failure to reach $100,000 within the expected timeframe, undermining its credibility.

4. Risk of misinterpretation—beginner investors may overly rely on a single tool, ignoring diversification of analysis.

Practical Application for Investors: How to Use the Model

For long-term investors planning over several years, the Stock-to-Flow model can serve as a useful compass under the following conditions:

Step one: learn the basics
Understand how the stock-to-flow ratio is calculated and how halving events influence model parameters. Grasping the mechanics is critical for proper application.

Step two: analyze historical patterns
Study how Bitcoin’s price responded to previous halvings and how accurately the model predicted these movements. This provides context for expectations.

Step three: integrate into a comprehensive strategy
Do not rely solely on S2F. Combine it with technical analysis (support/resistance levels, chart patterns), fundamental analysis (network development, adoption), and market sentiment analysis.

Step four: monitor external factors
Track regulatory news, macroeconomic indicators (inflation rate, currency exchange rates), and technological developments that could weaken or strengthen scarcity effects.

Step five: risk management
Set clear entry and exit thresholds, use stop-loss orders, and avoid portfolio concentration in a single asset. Any model, including S2F, has limitations.

Step six: adaptability
The cryptocurrency market evolves rapidly. Regularly review your strategy, including assumptions underlying the application of the Stock-to-Flow model.

Outlook: What to Expect from Future Cycles

According to S2F calculations, Bitcoin could reach $55,000 during the 2024 halving and potentially $1 million by the end of 2025. However, these forecasts remain controversial, as they do not account for possible geopolitical shocks or unexpected technological shifts.

Forecasts from various analysts vary: from $10 million per coin (Hale Finney’s hypothetical experiment) to $1 million by 2030 (ARK Invest’s forecast). Such divergence reflects deep uncertainty regarding Bitcoin’s long-term value.

Final Perspective: Tool, Not Oracle

The Stock-to-Flow model is a valuable but far from perfect analysis tool. Its strength lies in reflecting the long-term trend of Bitcoin’s scarcity. Its weakness is ignoring the complex reality where demand, innovation, and politics play roles no less significant than scarcity.

Bitcoin’s future will likely be shaped by the interaction of three factors: technological development, institutional recognition, and macroeconomic shifts—not just scarcity. Smart investors view the Stock-to-Flow as one element of a broader analytical system, not as the sole compass.

For those planning to hold Bitcoin for several years and believing in the deflationary argument, the model remains relevant. For traders focused on monthly or quarterly movements, it is less useful. In any case, understanding its mechanics will enrich your investment literacy.