Bitcoin Stock-to-Flow: From Theory to Practical Bitcoin Price Forecasting

Why Do Investors Care About the S2F Model?

Since Bitcoin was created in 2009, it has become the first digital asset to implement a global decentralized economic system. As a fully digital, transparent, and predictable currency, Bitcoin has attracted the attention of millions of investors.

Currently, Bitcoin is trading at $87.04K, with a peak history of $69,000. However, this volatility makes price trend prediction extremely complex. The cryptocurrency market operates in cycles, with strong growth phases interspersed with deep corrections. Therefore, investors are always looking for effective analytical tools to determine the best times to enter and exit the market.

This is where the Stock-to-Flow (S2F) model was born — one of the most widely used frameworks for long-term Bitcoin price trend forecasting.

Basic Principles of the Stock-to-Flow Formula

Stock-to-Flow is an economic model designed to evaluate the relationship between current stock (stock) and new production (flow) of an asset.

Specifically:

• Stock = total Bitcoin circulating in the market
• Flow = amount of BTC newly created annually through mining

The Btcf formula is simply expressed as:

S2F = Current BTC stock ÷ New BTC issued annually

The idea behind this formula is: when the amount of new BTC issued decreases (while stock continues to increase), the S2F ratio increases, leading to higher scarcity, which in turn drives up the price.

How Bitcoin Stock-to-Flow Differs from Traditional Models

Famous trader PlanB adjusted the S2F concept to apply to Bitcoin, instead of only using it for traditional physical commodities. This creates a powerful analytical tool specifically for the largest cryptocurrency in the world.

Unlike other forecasting models, Stock-to-Flow is highly linear because:

• Bitcoin’s issuance schedule is predetermined (max 21 million BTC)
• The new supply is unaffected by external market factors

This makes it highly attractive to investors who believe in scarcity (scarcity model).

Bitcoin Halving — A Model-Changing Event

The most significant factor affecting the S2F formula is Bitcoin halving — an event that occurs every 4 years.

In each halving:

• Mining rewards are cut by 50%
• The amount of new Bitcoin issued decreases significantly
• The S2F ratio skyrockets, signaling increased scarcity

Therefore, S2F forecast charts often show a stable price path before halving, followed by new peaks immediately after the event.

PlanB’s famous forecast: At the April 2024 halving, BTC price is expected to be in the range of $40,000 - $50,000, based on the 200-week moving average chart and his S2F model.

Historical Accuracy of the S2F Model

From a historical perspective, the Stock-to-Flow model has shown a consistent correlation with Bitcoin’s actual price. When the S2F ratio increases, BTC price tends to rise as well. This has been proven across multiple market cycles.

On Bitcoin’s S2F chart, one can observe:

• Prices often follow the forecasted path quite closely
• Deviations mainly occur during extreme (bubble) price surges or drops
• Long-term investors consider this consistency as a key factor in their strategy

According to current forecasts from the S2F model, Bitcoin’s price is expected to stay around $50,000 until the next halving, after which it may surpass $500,000 by 2025 (if the model continues to work accurately).

Unavoidable Limitations of S2F

Although effective in the past, the Stock-to-Flow formula has notable weaknesses:

Does not account for exogenous factors:

• Macro-economic events (financial crises, interest rate policies)
• “Black swan” events (black swan) that cannot be predicted
• Adoption rate fluctuations (adoption rate)

The model’s linear nature:

• Focuses solely on scarcity, ignoring other fundamental factors
• Does not reflect changing market psychology over time

Poor short-term effectiveness:

• Traders trying to use S2F for short-term trading often struggle
• The model is mainly designed for long-term holders

Experts and Opinions on the S2F Model

The cryptocurrency community has divided opinions on this model:

• Adam Back (CEO of Blockstream): S2F is within an acceptable margin of error
• Vitalik Buterin (Ethereum co-founder): Criticizes the model but admits it cannot be dismissed entirely because halving does not always correlate with price increases
• Cory Klippsten (Founder of Swan Bitcoin): Believes PlanB is trying to confuse followers
• Alex Krüger (Economist and trader): One of the most vocal critics, considers S2F meaningless for price forecasting
• Nico Cordeiro (Strix Leviathan Fund): Describes the model as a “chameleon”

How to Use Stock-to-Flow Smartly

Instead of relying solely on the S2F formula, investors should use this model as part of a comprehensive strategy:

Combine with other tools:

• Technical Analysis (Technical Analysis)
• Fundamental Analysis (Fundamental Analysis)
• Sentiment Analysis (Sentiment Analysis)
• On-chain data (blockchain metrics)

Most suitable for:

• Long-term investors (holding 2-4 years or more)
• Those who believe in Bitcoin’s scarcity
• Asset valuation strategies based on scarcity

Not suitable for:

• Short-term trading (day trading, swing trading)
• Anyone needing precise short-term forecasts

Conclusion: S2F Is a Tool, Not the Ultimate Method

Stock-to-Flow has proven its value in forecasting long-term Bitcoin trends. Its simplicity makes it accessible and easy for many new investors to adopt. However, it’s crucial not to rely solely on the S2F formula for investment decisions.

Historical accuracy does not guarantee future precision. Smart investors should combine S2F with other indicators and tools to develop a more comprehensive view of the market and potential developments in Bitcoin’s future cycles.