The Stock-to-Flow (S2F) model is a quantitative framework primarily used to predict the long-term price of scarce assets, notably Bitcoin, based on their existing supply (stock) relative to the rate at which new supply is produced (flow). It postulates that assets with higher stock-to-flow ratios, indicating greater scarcity, will exhibit higher monetary value. This model is a tool for assessing the intrinsic value and future price trajectory of digital commodities with a limited supply schedule.
Mechanism
The mechanism of the S2F model derives from commodity markets, where the ratio of current circulating supply to annual production rate influences value. For Bitcoin, the stock is the total amount mined, and the flow is the new supply generated through mining rewards, which halves approximately every four years. The model leverages these verifiable, programmed scarcity events to project a corresponding increase in market price over time.
Methodology
Applying the Stock-to-Flow model involves analyzing an asset’s issuance schedule and total supply cap to calculate its scarcity metric. The methodology then correlates this metric with historical price data using regression analysis to establish a predictive relationship. While offering a specific perspective on scarcity-driven valuation in crypto, critics note its limitations in capturing demand-side factors or black swan events.
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