The Future of Bitcoin from a Scarcity Perspective: An Interpretation of the Stock-to-Flow Model

The Value Code of Bitcoin: Why Scarcity Matters

Since its inception in 2009, Bitcoin, as the first fully decentralized, traceable, and transparent digital asset, has fundamentally reshaped people’s understanding of money. As the leader in cryptocurrencies, Bitcoin drew global attention when it surged above $69,000 in November 2021. However, its price trajectory has not been smooth—cyclical bull and bear markets have left many investors puzzled about “when to enter.”

Currently, Bitcoin’s price hovers around $88,770, with market volatility still intense. In this environment, the Stock-to-Flow (S2F) model has emerged, providing those navigating the vast ocean of crypto investments with an analytical framework based on the principle of scarcity.

The Essence of the Stock-to-Flow Model: Measuring Value Through Scarcity

Originally used to assess the scarcity of precious metals (especially gold and silver), the Stock-to-Flow methodology has recently been creatively applied to Bitcoin analysis.

The logic of this model is straightforward:

Stock refers to the total amount of the commodity currently in circulation; for Bitcoin, this is the total mined supply.

Flow is the rate of new supply—i.e., the number of new Bitcoins mined each year.

The calculation formula is simple: S2F = Stock ÷ Flow

A higher coefficient indicates greater scarcity, and theoretically, higher value. The reason gold is so precious is largely because its S2F ratio is at a historical high.

How Bitcoin Reflects Scarcity Through the S2F Model

Unlike traditional commodities with fixed outputs, Bitcoin has an absolute supply cap—21 million coins. This unchangeable limit endows Bitcoin with a natural deflationary property.

Most critically, the halving mechanism. Approximately every four years, Bitcoin’s mining reward halves, significantly reducing the rate of new coin issuance. When flow decreases and stock remains unchanged, the S2F ratio rises, increasing scarcity. Historical data shows that shortly after each halving, Bitcoin’s price tends to enter a significant upward cycle.

This logic implies: over time, Bitcoin will become increasingly scarce, and its value may follow a growth trajectory similar to that of precious metals like gold.

Hidden Variables Affecting Bitcoin’s S2F

Beyond the “hard rule” of halving, several factors can influence the accuracy of the S2F model’s predictions:

Mining Difficulty Adjustment: The Bitcoin network recalculates mining difficulty every two weeks to maintain a relatively stable block generation rate. Sudden jumps or drops in difficulty alter the rate of new coin creation.

Market Adoption: From retail investors to institutions and governments, increasing attention and demand for Bitcoin, under the assumption of a relatively fixed supply, can significantly drive up prices.

Regulatory Environment: Different countries have vastly different attitudes toward crypto assets. Stringent restrictions can suppress demand, while friendly policies can stimulate market enthusiasm.

Technological Iterations: Solutions like the Lightning Network and upgrades to security features impact Bitcoin’s usability and attractiveness.

Market Sentiment Cycles: Macroeconomic fluctuations, geopolitical events, and media coverage continually reshape investor perceptions of Bitcoin.

Competitor Threats: Although Bitcoin’s position is strong, emerging alternative tokens may divert investor attention.

Macroeconomic Context: Rising inflation, currency devaluation, and financial crises can increase demand for Bitcoin as a store of value.

These variables intertwine, ultimately determining whether the S2F ratio can reliably predict price movements. It is important to emphasize that S2F is just one of many analytical tools and cannot capture the full complexity of the crypto market.

The Predictive Power of the S2F Model: Historical Review and Actual Performance

According to research by the model’s creator, PlanB, Bitcoin has historically experienced bull markets following each halving. The model predicts that after the 2024 halving, Bitcoin could break through $55,000, and by the end of 2025, possibly reach $1 million.

Long-term charts show that Bitcoin’s price correlates impressively with the S2F forecast line. Aside from a few extreme market events, the price trajectory generally follows the model’s indicated direction. This historical consistency has given confidence to many long-term investors.

However, caution is warranted—past performance does not guarantee future results.

Experts’ Debate: Is the S2F Model Reliable?

Supporters and critics have engaged in intense debate over this model.

The Criticism Camp: Ethereum co-founder Vitalik Buterin bluntly said the model is “not very good,” even calling it “misleading” because it oversimplifies supply and demand dynamics. Nico Cordeiro, Director of Strix Leviathan, questions the fundamental assumptions, believing that betting solely on scarcity is overly naive. Corey Klippsten, founder of Swan Bitcoin, and well-known trader Alex Kruger have expressed doubts about the predictive capability of S2F.

Supporters’ View: Adam Back, CEO of Blockstream, argues that the model is a reasonable fit to historical data—declining new coin issuance → increasing scarcity → rising prices—this logical chain is unshakable.

The truth is: while the model has its rational basis, it also has clear shortcomings. It assumes scarcity is the sole driver of value, neglecting other equally important variables like market demand, technological innovation, and policy shifts.

The Real Boundaries of the S2F Model

Frankly, this model has several unavoidable limitations:

1. External Factors Are Virtually Ignored: The model focuses solely on supply-side mathematical changes, ignoring demand-side shifts. Technological progress, regulatory changes, and economic cycles can reshape market perceptions of Bitcoin, but S2F cannot capture these.

2. Past Success Does Not Guarantee Future Performance: The model’s past predictions have been relatively accurate, but this does not constitute an absolute guarantee. The complexity and unpredictability of the crypto market often exceed any single model’s capacity.

3. Overemphasis on Scarcity: As Bitcoin’s ecosystem matures, its practical utility in payments, store of value, and DeFi is increasing. These functional improvements may drive long-term value growth more than scarcity alone, but S2F ignores this.

4. Objective Risk of Misinterpretation: The optimistic forecasts generated by the model can be exaggerated or misused, especially by inexperienced investors, leading to unrealistic expectations.

How to Apply S2F in Practical Investment

Despite its limitations, the model still offers value for long-term holders. Here is a practical strategic framework:

Step 1: Deeply Understand the Model Logic. Don’t just skim the surface—comprehend how S2F infers price evolution from supply-side changes.

Step 2: Review Bitcoin’s Historical Responses. Observe how prices have fluctuated around past halving events. Remember: history is a reference, not a blueprint.

Step 3: Build a Multi-Dimensional Investment System. Use S2F as one piece of the puzzle, complemented by technical analysis, fundamental evaluation, and market sentiment analysis to form a more complete picture.

Step 4: Continuously Monitor External Variables. Policy adjustments, economic data, industry trends—any of these can invalidate S2F assumptions.

Step 5: Set Risk Management Boundaries. Don’t rely solely on one model. Establish clear stop-loss points, and allocate funds based on your position size and risk tolerance.

Step 6: Embrace Long-Term Thinking. The S2F model is designed for long-term investors. Short-term performance may be poor, but over extended periods, its guidance can become more meaningful.

Step 7: Regularly Iterate Your Strategy. The crypto market evolves rapidly—what works this year may be outdated next year. Stay learning-oriented and adjust your approach based on new information.

The Future Applicability of the S2F Model

The prospects for Bitcoin and the S2F model are filled with uncertainty. Some analysts firmly believe that scarcity will continue to push prices higher, targeting $1 million or more by 2030. Others worry that in the face of real-world policies, technological developments, and market forces, any single model may be too fragile.

The reality may lie somewhere in between. Ultimately, Bitcoin’s value is determined by multiple factors: scarcity is important, but market acceptance, technological innovation, regulatory and environmental policies, and even global macroeconomic conditions are equally critical.

The future evolution of Bitcoin’s price will result from the interaction of these forces, not a linear extrapolation of a single factor. For investors, understanding the S2F model is valuable, but it is even more important to recognize its limitations.