Understanding Bitcoin's Stock-to-Flow Model

We recently walked through two of the most common approaches to valuing bitcoin, both of which focused on potential demand. In this piece and the next, I’ll look at supply, examining how the timing and magnitude of releases of bitcoin affect its price.

One theoretical framework for estimating bitcoin’s value is based on “stock-to-flow,” a metric borrowed from commodities analysts who use it to measure the scarcity of precious metals.

"Stock" refers to preexisting supply of a given asset, while "flow" describes how much of that asset can be produced in a given year. The higher the stock-to-flow ratio, the more difficult it is to meet existing demand with new supply.

Bitcoin’s strictly limited supply has succeeded in creating real scarcity, and that has contributed to its performance. The stock-to-flow ratio allows us to measure the connection between the two, and that’s incredibly useful.

Although the ratio is useful, I remain unconvinced that it’s predictive. Stock-to-flow is helpful for understanding how bitcoin got to where it is, but not so much at explaining where it’s going.

Before we examine the case for stock-to-flow as a valuation model, it’s worth reviewing a few of the basics. Namely, how we define “stock” and “flow’ when it comes to bitcoin.

Stock: 19.3 million bitcoins have been mined and are in circulation. This figure increases slightly each day. This is the numerator in our ratio.

Flow: the rate that new bitcoins come online. Bitcoin’s code dictates its issuance schedule, with three cardinal rules:

• New tokens must automatically be issued every 10 minutes.
• The amount of tokens issued in each window is prespecified.
• Every four years, the number of tokens issued per window is halved.

Here’s the issuance timeline:

• 2008–2012: 50 BTC every 10 minutes
• 2012–2016: 25 BTC every 10 minutes
• 2016–2020: 12.5 BTC every 10 minutes
• 2020–2024: 6.25 BTC every 10 minutes
• 2024 onward: 3.125 BTC every 10 minutes

Additional notes:

• Bitcoin’s stock-to-flow ratio will naturally rise over time due to growing stock and shrinking flow.
• Stock-to-flow is an annualized figure and takes about a year to fully reflect issuance changes.

Think of the stock-to-flow framework as a three-legged stool based on three assumptions:

1. The stock-to-flow ratio drives price movements.
2. This relationship is stable over time.
3. It can be used to predict an asset’s future value.

Leg 1: Stock-to-flow correlates with bitcoin price. Historically, both have risen in tandem, especially during major rallies in 2016–2017 and 2020–2021. The correlation (R² ≈ 0.94) is strong when overlaying the two metrics.

Leg 2: The stability of the relationship is questionable. The original model from 2019 (slope constant of 3.3) failed to predict later returns accurately. When rerun in 2023 with updated data, the correlation weakened slightly.

Leg 3: Stock-to-flow cannot yet reliably predict future prices. Even though scarcity increases, price forecasts based on the model (e.g., $216,600 by 2028) seem overly optimistic.

Why? Because stock-to-flow and bitcoin might both respond to another variable—like issuance halving—rather than one driving the other.

Excluding bull runs from the data weakens the relationship significantly (R² drops to 6.7%), suggesting the model may not hold outside of peak hype periods.

Stock-to-flow demonstrates a correlation between scarcity and performance, but correlation doesn’t equal causation. We need more data and refined models that don’t assume perpetually rising prices to make real forecasting progress.

In forecasting, patience is essential. Even if scarcity is bitcoin’s key driver, the valuation tools based on it must be improved for them to be truly reliable.