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Bitcoin Stock-To-Flow (S2F) Model Explained

Bitcoin Stock To flow modek

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Bitcoin is perceived to be the synonym for cryptocurrency, although it is nothing but one of the cryptocurrencies- The predominant one. The Bitcoin comes with an interesting property of a fixed hard supply cap which decides the total number of Bitcoin to let for circulation. 

As per the data, the total Bitcoin in circulation as of April 2022 is 18.999 million. Looking at its hard cap value, only 10.7% or 2,000,225 BTC is available for mining in the coming years. However, the year 2140 is when the last Bitcoin will be mined and touch the capped supply value of 21 Million Bitcoin.

How and why it takes that time for the last BTC to be mined shall be discussed in the blog. 

Key Concepts Covered In The Blog

  • Facts that affirm Bitcoin to be the digital gold
  • A crisp note on the stock-to-flow concept
  • What is Bitcoin halving
  • Insight on Bitcoin distribution assessed through the stock-to-flow model

Justifying The Grounds Of Bitcoin As Digital Gold

What gave the yellow metal- Gold all the hype and financial value? One obvious reason is its Rarity. Experts determine the Stock to flow ratio to find the rarity of precious metals like Gold or Platinum. 

SF=Stock/Flow

Stock is the total gold produced so far, and the Flow corresponds to the annual production of gold. By dividing this, we can identify the years it would take to produce the same amount of gold currently in circulation. 

The current production rate for gold is 3000 metric tonnes, with an existing stock of 185,000 metric tonnes all over the world. Substituting the formula, we can find the value to be approx. 62 years is the time to mine the amount of gold that is in supply now. 

The greater the number of years, the scarcer the asset is. This proves the scarcity of gold and why it is topping in value in the financial market. This same trait can be compared with Bitcoin.

The total Bitcoin supply is fixed at 21 million, and only that many can exist. And therefore, like how Gold was able to withstand the test of time and rose in its value, Bitcoin also shows the signs of gaining increased interest from the user. 

Other criteria such as exchange in return for goods and services, Fractional buying of assets are also favored by Bitcoin as it does with the gold, which justifies the comparison of Bitcoin as digital gold.

The metric of the stock-to-flow model, which is used to analyze the value of an asset with respect to its supply distribution, can be discussed for Bitcoin elaboratively in the coming section.

Bitcoin Stock-To-Flow Model

Applying the same formula, considering Bitcoin, the yearly production is 657,000, with currently 19 billion coins in circulation. It can be found from the BTC stock-to-flow that it would take 27 years to mine the current stock of BTC. 

But Bitcoin adopts a different concept of Bitcoin halving, which does not apply to gold. With this, the total years it would take for the last bitcoin to be mined is 2140. Let’s get in further into the topic of Bitcoin halving.

The Phenomenon Of Bitcoin Halving

Created by Satoshi Nakamoto, the supply of Bitcoin was capped at 21 million to prevent inflation that would arise from unlimited distribution. Bitcoins are mined by miners, who validate the bitcoin transactions and add them as blocks in the blockchain

The miners are rewarded in return with Bitcoins for confirming the block. Initially, when Bitcoin was introduced in 2008, miners were given 50 Bitcoins as rewards for mining. But Bitcoin algorithm is programmed such that the Bitcoin number is halved for every 210,000 blocks or roughly four years.  

In 2012, the number after halving was 25 Bitcoins, followed by 12.5 Bitcoins in 2016 & 6.25 Bitcoins in May 2020. This halving continues until the last Bitcoin is mined. Out of the 21 million supply, nearly 19 million are mined already, but this halving process drags the left 10% of BTC to be mined in the year 2140. 

As you can see from the above Bitcoin stock-to-flow chart, the Bitcoin distribution reduces with time. 

What Did Bitcoin’s Stock-To-Flow Model Fail To Address?

Bitcoin’s stock-to-flow model with associated price value predictions is given by purely focusing on the supply part. Thereby, volatility factors and market uncertainties are overlooked. 

The Stock-to-flow BTC model predictions couldn’t withstand the bear-market conditions and failed at times. Also, during times like these, panic selling of coins reduces the demand, contributing to the downfall in price, which is not taken into account in the BTC Stock-to-flow model. 

Final Say,

Despite the drawback, Stock-to-flow chart on price value predictions can be added to the list of financial strategies and advice that one would take up before investing in cryptocurrency.

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