Run the Numbers #08: Bitcoin Stock-to-Flow

Bitcoin & Data Science


Leading Austrian economist Saifedean Ammous first popularized the concept of Stock-to-Flow (S2F) in relation to Bitcoin in his best selling book The Bitcoin Standard. Simply speaking, it is a ratio of an assets current stock (total supply) divided by its flow (total new supply created during one year). Ammous proposes this as an effective way to measure an asset’s scarcity — the higher the S2F ratio, the scarcer the asset. He argues that this is the main reason that gold has remained valuable as a monetary good for thousands of years, where other precious metals (with lower S2F ratios) have not. Gold has a S2F of 62, meaning it will take 62 years to mine as much gold as is currently mined. This has remained the world’s scarcest monetary asset for thousands of years until the invention of Bitcoin.

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Chart created by PlanB @ 100trillionUSD

We know that the total amount of Bitcoin that will ever exist is 21 million. So in a sense Bitcoin’s S2F is a 100% perfectly scarce asset. However, many would argue that although its total future supply is known, the actual current supply is not yet 21 million as there are still coins that will be ‘mined’ in the future. The block reward, or the number of new Bitcoins minted with each block mined, began at 50 and is cut in half every 4 years until it eventually reaches 0, approximately by the year 2140. The current block reward is 6.25 Bitcoin. Using this number, we can calculate Bitcoin’s current S2F as 25, increasing over time as it trends towards 100.

In 2019, an anonymous quantitative analyst that goes by PlanB (for Bitcoin), @ 100trillionUSD on Twitter, released a model using Bitcoin’s Stock-to-Flow in order to predict its future price. A chart of the model from just after the Bitcoin halving earlier this year can be seen below.

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Chart created by PlanB, @ 100trillionUSD

The white line is the predicted price by the model and the colored dots represent the actual measured price. The color changes throughout the 4 year cycle as Bitcoin gets closer to the halving event, the first red dot representing the halving. As we can see the model has performed extremely well so far for Bitcoin’s 10 year price history. Many Bitcoiners, myself included, like to keep an eye on the price and how this model performs over time.