Stock to flow concept, a reliable price prediction factor or scarcity indicator?

[Olotu20]

Stock to flow is a concept in Bitcoin that, is used to estimate the scarcity and possible value of Bitcoin based on its limited supply rate. This concept make use of the already existing Bitcoin that, are in supply which has been mined known as the ( stock ) With the amount of New Bitcoin mined every year which is considered as the ( Flow).

The mathematical formula when calculating the stock to flow concept is = The amount of existing supply ÷  by the annual new supply.

Every four years it should be noted that Bitcoin experience having, this cut down the amount of Bitcoin that has been mined to two. This consiquentily reduces the flow rate thereby, increasing the stock to flow ratio in the Bitcoin block chain making Bitcoin more scarcer over time. But there are two diverging opinions about this concept because, there are people who see S2F as a price prediction factor due to the facts that scarcity leads to long term price increases.


While others also argue that Bitcoin price can also be influenced by demands in market, regulations and markets sentiments etc and so stock to flow concept if you ask me, should be seen as a one concept when ever we are talking about Bitcoin scarcity rather than using it as a price prediction factor or tools.


What is your options concerning stock to flow ( S2F).

[Smartprofit]

I believe Bitcoin has two core characteristics: scarcity and intrinsic value. Bitcoin's intrinsic value is determined by its use as global, decentralized money.

What, in my opinion, is the cause of Bitcoin's current crisis? Representatives of the traditional financial system refuse to recognize Bitcoin as global, decentralized money. They even propose calling Bitcoin not a currency, but a purely digital asset... They propose defining the value of this asset solely based on its scarcity. Their narrative: scarcity equals value...

However, in my opinion, scarcity alone is not enough to determine the value of an asset. Its value comes from its utility. A financial instrument for preserving capital from inflation (in the long term), by the way, is also useful. This is precisely why gold is a valuable asset (it benefits investors).

However, if Bitcoin's utility is deliberately undermined through government regulation, centralized custody, bans on anonymity and privacy on the network, the introduction of KYC and AML procedures, and the creation of derivatives, then Bitcoin's underlying value will diminish. This is precisely what is happening now. And scarcity is no longer helping Bitcoin. As a result, we are seeing a low Bitcoin price and declining investor interest. 🙎

[SquirrelJulietGarden]

Stock to flow is a concept in Bitcoin that, is used to estimate the scarcity and possible value of Bitcoin based on its limited supply rate. This concept make use of the already existing Bitcoin that, are in supply which has been mined known as the ( stock ) With the amount of New Bitcoin mined every year which is considered as the ( Flow).

What is your options concerning stock to flow ( S2F).

Stock to Flow from PlanB was a famous model for Bitcoin price prediction but it failed in two market cycles ago. In the last market cycle, this model was no longer mentioned like in 2020 and 2021 years. This information and loss of the S2F model popularity and appearance on media can give you some ideas about why.

This model was no longer accurate and people don't want to use it for predicting Bitcoin price.
Plan B is right that "all models are wrong but some models are useful".

In a latest market cycle, people changed to this model.
Giovanni Santostasi - The Bitcoin Power Law Theory.

[Aanuoluwatofunmi]

While others also argue that Bitcoin price can also be influenced by demands in market, regulations and markets sentiments etc and so stock to flow concept if you ask me, should be seen as a one concept when ever we are talking about Bitcoin scarcity rather than using it as a price prediction factor or tools.

Let's not always believe on what they are saying because not everyone online are saying the actual thing about Bitcoin, the market is volatile doesn't mean that we are at risk, bitcoin is not going to be that scarce in such a way that makes it centralized, instead we should see discussity has been part of the reason why it increases in value because of the high demand and the effectiveness of its application in diverse ways.

[Rashlyowl]

(1) Demand
(2) Interest rates
(3) Institutional adoption
(4) Regulation
(5) Market sentiment
(6) etc.

There are many factors involved in predicting & determining the price of BTC, scarcity cannot be the sole factor. After what we've seen in the market over the past few years, I feel that 'Stock to Flow' is no longer relevant. So, it can no longer really serve as a strong predictor of BTC price, it is merely an indicator of scarcity.

[d5000]

Stock to flow is not even a scarcity indicator. Scarcity is a concept describing the relation between supply and demand.[1] Stock to flow only describes the supply side.

For its predictive value, Stock to flow has to be combined with a demand theory. In later iterations of the "theory" PlanB combined Stock to Flow with a very simple demand curve derived from Metcalfe's Law. The problem is that this theory does not take into account other factors that can influence demand, like sentiment, interest rates, competition by gold and other assets, macroeconomic factors like economic growth (which can boost or limit demand) etc. So the predictive theory had to fail.

There are no positive reviews of S2F in economic science afaik. So it can be considered pseudo-science, also because PlanB always tried to "adapt" his model to the real price.


[1] An asset is "scarce" if its demand would be higher than supply if the price was zero. This is true for most things with a few exceptions like salty water. The scarcity grade is determined by the surplus on the demand side. One can say a good is more scarce, the higher the maximum price where demand is still above supply.

The interesting thing is that while Bitcoin is probably scarce at all prices, it would not be scarce if it stayed some time at price zero.

[Wordleunlimited]

Stock to flow is a concept in Bitcoin that, is used to estimate the scarcity and possible value of Bitcoin based on its limited supply rate. This concept make use of the already existing Bitcoin that, are in supply which has been mined known as the ( stock ) With the amount of New Bitcoin mined every year which is considered as the ( Flow).

The mathematical formula when calculating the stock to flow concept is = The amount of existing supply ÷  by the annual new supply.

Every four years it should be noted that Bitcoin experience having, this cut down the amount of Bitcoin that has been mined to two. This consiquentily reduces the flow rate thereby,wordle unlimited increasing the stock to flow ratio in the Bitcoin block chain making Bitcoin more scarcer over time. But there are two diverging opinions about this concept because, there are people who see S2F as a price prediction factor due to the facts that scarcity leads to long term price increases.


While others also argue that Bitcoin price can also be influenced by demands in market, regulations and markets sentiments etc and so stock to flow concept if you ask me, should be seen as a one concept when ever we are talking about Bitcoin scarcity rather than using it as a price prediction factor or tools.


What is your options concerning stock to flow ( S2F).

It could be seen that the stock to flow ratio may prove to be useful when studying the aspect of scarcity in Bitcoins, however, it would not be feasible to make any price prediction with the help of this concept as far as the current scenario of market is highly complex, where, along with the supply of Bitcoins, there are several other factors which influence the prices.

[lionheart78]

What is your options concerning stock to flow ( S2F).

As far as I understand, the concept of supply of Bitcoin, it has a fixed total number of coins at around 21m.  Stock to flow is just a concept on how the Bitcoin coins will enter the market, and I do not think it is a reliable price prediction factor because price is dependent on the demand of people in relation to its current supply existing on the market, not the one that exists on the blockchain.

So stock to flow concept is more of an indicator of Bitcoin scarcity rather than a reliable price prediction factor.

[EarnOnVictor]

-Snip-
What is your options concerning stock to flow ( S2F).

Stock-to-Flow (S2F) concept in Bitcoin is one of the most useless concepts and conspiracy theories that I've ever seen. It is just a diversion/distraction by those who do not know what else to say again, but still wanted to be heard

An approximate 20.05 million BTC has been mined, and a very little amount of 950,000 BTC is what's left to be mined, and even it's mining is so little to the point that halving doesn't have much effect as before. Is that what they are basing their scarcity and calculations upon? That's fake!

[Filicius]

-Snip-
What is your options concerning stock to flow ( S2F).

Stock-to-Flow (S2F) concept in Bitcoin is one of the most useless concepts and conspiracy theories that I've ever seen. It is just a diversion/distraction by those who do not know what else to say again, but still wanted to be heard

An approximate 20.05 million BTC has been mined, and a very little amount of 950,000 BTC is what's left to be mined, and even it's mining is so little to the point that halving doesn't have much effect as before. Is that what they are basing their scarcity and calculations upon? That's fake!

Apart from the greater difficulty of mining new Bitcoin, we should also take into account the fact that more and more are lost forever, which also contributes to its scarcity. Although there are theories that in the future they can be recovered thanks to quantum computing, and I don't know if it is being discounted.

[el kaka22]

Not for bitcoin, while that is a good thing for the stock markets, we are not talking about something that makes sense for the other stuff. We should be looking at this like it is something that would benefit everyone but at the same time we are forgetting that stock to flow was created for shares and stocks, not for bitcoin.

Why not work here? Because we do not look at it, and if we do not look at it, we can't move for it, so if you are the only one looking at it and react to it, and others do not know about it, then we won't act according to what you expect ,and you will lose.

[treesintheforestooh]

I believe Bitcoin has two core characteristics: scarcity and intrinsic value. Bitcoin's intrinsic value is determined by its use as global, decentralized money.

What, in my opinion, is the cause of Bitcoin's current crisis? Representatives of the traditional financial system refuse to recognize Bitcoin as global, decentralized money. They even propose calling Bitcoin not a currency, but a purely digital asset... They propose defining the value of this asset solely based on its scarcity. Their narrative: scarcity equals value...

However, in my opinion, scarcity alone is not enough to determine the value of an asset. Its value comes from its utility. A financial instrument for preserving capital from inflation (in the long term), by the way, is also useful. This is precisely why gold is a valuable asset (it benefits investors).

However, if Bitcoin's utility is deliberately undermined through government regulation, centralized custody, bans on anonymity and privacy on the network, the introduction of KYC and AML procedures, and the creation of derivatives, then Bitcoin's underlying value will diminish. This is precisely what is happening now. And scarcity is no longer helping Bitcoin. As a result, we are seeing a low Bitcoin price and declining investor interest. 🙎

I agree in large part. Though, I think there's some blindspots around this perspective.  

Bitcoin's value comes from its energy expenditure first and foremost.  

Security is ultimately an energy-and-incentives schema: miners spend electricity to protect the network and that security is funded by block subsidies plus fees. Of course, those are shrinking as halvings continue and the network is becoming a "Store of Value."

The arguments for or against it being a SoV are largely irrelevant considering the powers that be and general trend: it will remain that way. Particularly in the face of all the corruption and incompetency in the fiat world and related markets.

As well, fees very _{(very, very)} likely won't be enough to subsidize miners due to the inherent nature of the Lightning Network and other Layer 2 projects.

With that said, this reminds me of another reply from a month back or so and is relevant here and is related to the Bitcoin Security Intensity (BSI).

It's calculated as such:

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

BSI = miner revenue/marketcap

In 2014 it was at about 3.9%. For reference, the United States spends about 3.4% of GDP on security in the form of the military and other defense (low estimate; probably higher with "black" projects, etc...).

Right now, 2026 BSI is sitting at about 0.80%.

Daily Miner Revenue: $35.89M (block rewards + fees).

Annualized Revenue: $35.89M × 365 = $13.1B.

Market Cap: 20,026,037 BTC × $81,291 ≈ $1.63T.

BSI = ($13.1B / $1.63T) × 100 = 0.80% _{(note: this is out of date, the current BSI is actually lower)}

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In other words, the security/money that's protecting Bitcoin is trending down. That makes the Bitcoin network a bigger target for attack - and all the more reason to protect.

Post-2028 halving (1.5625 BTC/block), if BTC hits $1M, BSI would fall to roughly 0.13%

If each bitcoin were to reach a value of $1T by the year 2100 _{(also very unlikely, but for argument's sake)} the BSI would be 0.0000000149%.

In other words, the amount of value contained in the Bitcoin network would be enormous, but protected by something like a styrofoam wall.  

Almost needless to say, it would be attacked and brought down without question by "terrorists" or something of the sort. An attack on the network doesn't even have to be monetarily driven. Most likely, an attack on Bitcoin would be - almost assuredly - politically and ideologically driven and motivated.
 
This makes it clear that we need another way in which to subsidize miners. Fees aren't going to cut it.

That's if we want Bitcoin to remain considerably valuable and even increase in value.

[BitGoba]

Bitcoin is both money and a monetary system. There are only two ways Bitcoin’s purchasing power can increase.

The first is through new users entering the network, whether they are speculators who buy Bitcoin only to make more fiat currency, or real users who use Bitcoin as money as a store of value, a medium of exchange, and eventually a unit of account.

The second is through the productivity of those users. The more people use Bitcoin as their primary money, and the more productive those people become, the more real value they create and store in Bitcoin. That is how Bitcoin’s purchasing power grows.

[Don Pedro Dinero]

Stock to Flow from PlanB was a famous model for Bitcoin price prediction but it failed in two market cycles ago. In the last market cycle, this model was no longer mentioned like in 2020 and 2021 years. This information and loss of the S2F model popularity and appearance on media can give you some ideas about why.

As is often the case with such models, when they are formulated, they are more useful for explaining the past than for predicting the future. As a predictive model, it failed spectacularly.

Stock to flow is not even a scarcity indicator. Scarcity is a concept describing the relation between supply and demand.[1] Stock to flow only describes the supply side.

For its predictive value, Stock to flow has to be combined with a demand theory. In later iterations of the "theory" PlanB combined Stock to Flow with a very simple demand curve derived from Metcalfe's Law. The problem is that this theory does not take into account other factors that can influence demand, like sentiment, interest rates, competition by gold and other assets, macroeconomic factors like economic growth (which can boost or limit demand) etc. So the predictive theory had to fail.

That’s right: if scarcity alone determined the price, stamp collections would become increasingly valuable; and whilst some did become more valuable in the 20th century, they are now worth less and less due to falling demand.

[d5000]

BSI = miner revenue/marketcap [...]
In other words, the security/money that's protecting Bitcoin is trending down. That makes the Bitcoin network a bigger target for attack - and all the more reason to protect.

While I agree in general that network security is a relevant factor for Bitcoin's value proposition, I think I would calculate it differently.

From my perspective, the attack target value comes from the value transferred in an average transactions in a timeframe, but not from the market cap. The 51% attackers' income main source is the stolen money from the double spends it may be able to perform. So the attacker's potential to recover cost is bound to the typical value of transactions he could perform to steal the money.

Two examples of a double spend the attacker could perform:

- deposit on exchanges: he's bound to the maximum value the exchange is accepting without source of income or so, and also to the value a single P2P trader would accept
- payment to a merchant: he's bound to typical prices of items.

Both items don't depend on market cap, but rather on a value in USD or purchasing power close to a "typical" Bitcoin transaction, or at least to the total transaction volume (in USD) per block.

Then there is short selling potential but it depends on a lot of variables so it's very hard to project into the future, it probably indeed correlates somewhat with price/market cap (higher price -> higher income) but I will ignore it for now due to its complexity. And finally there's the block subsidy - where a low value is bad for the attacker, but also reduces his costs, so it can be considered "neutral".

The formula to see the "double spend potential" we would need is the following:

USD (purchasing power) value of the BTC transactions in a timeframe / attack cost for that timeframe

I may explore that concept in another thread because here it would derail the thread too much. The values for the USD value per day transferred according to https://blockchair.com/bitcoin/charts/transaction-volume-usd:

2014-01-01 - 403 million USD
2018-01-01 - 22.5 billion USD
2022-01-01 - 107 billion USD
2026-01-01 - 52 billion USD

This shows that while 2014 had a very low value, since 2018 this value is growing much slower than market cap, between 2022 and 2026 it even fell.