The stock to flow model is a popular metric used by some analysts to try and forecast the future price of Bitcoin. According to twitter pseudonym ‘Plan B’ who popularized the model, it’s been for the most part accurate within reason in its Bitcoin price predictions.
What is the Bitcoin Stock To Flow Model Chart?
The Bitcoin Stock to Flow Model is a popular Bitcoin forecasting metric that measures Bitcoin’s current stock against the rate of production or the total amount mined over the course of a year. Stock-to-flow compares abundance or scarcity of Bitcoin. The model is also applicable to other scarce commodities like gold and platinum and even more abundant commodities like oil.
Stock refers to the total amount of an asset, whereas flow refers to the amount produced or mined per year. We can calculate the Stock-to-Flow ratio using these two metric (stock and flow) and dividing the stock by the flow. The higher the stock to flow ratio, the less new supply enters the market relative to the total supply. Assets with higher Stock-to-Flow ratios theoretically retain their value well over time.
Bitcoin is a perfect asset for measurement with the stock-to-flow ratio. Bitcoin is scarce in that only 21 million Bitcoins will ever be mined and it is relatively costly to mine or produce Bitcoin. This number is likely even lower as many Bitcoins have already been lost. Bitcoin also has “halvings” where the amount of new supply entering the system is halved every 210,00 blocks or roughly every 4 years. According to crypto enthusiasts, these properties combined with several others make up a scarce digital asset that is likely to retain and significantly increase in value over time due to an increasing reduction in the Stock to Flow ratio.
As Bitcoin has a maximum supply of only 21 million tokens and mining a new token is a time and energy-intensive process, the supply influx of Bitcoin is limited to a certain amount that can come into circulation within a given timeframe. The stock-to-flow model takes this scarcity and supply limitation into account while forecasting the price of BTC. The calculation for the Bitcoin price is based on a formula that uses variables like the monthly stock to flow value and price data.
Is the Stock-to-Flow Model Accurate
Historically the stock-to-flow has been one of the most accurate price forecasting models for Bitcoin as you can see in the image of the model below. However last year the popular forecasting tool is under some scrutiny after the flash crash of the crypto market in May, 2021. According to Plan B, the BTC price was supposed to have surpassed $100,000 by the 4th quarter of 2021, but that did not occur. Later in the year Plan B predicted that Bitcoin could touch $450,000 by year but a worst case scenario would be a $135,000 price by year end, both scenarios did not play out as Bitcoin reached a high of just over $69,000 for the year. Plan B argues that these predictions do not invalidate the stock-to-flow model as the Bitcoin price remains within the acceptable price range of the model.
Future Bitcoin Stock-to-Flow forecasts
The Stock-to-flow chart forecasts that the price of Bitcoin (BTC) on 31st December 2022 will be $78,280. Its Bitcoin price prediction for 1 year later on the 31st December 2023 is $81,956. There is then a large price hike the following year with the BTC price prediction of $306,984 on 31st December 2024.
How to view the Bitcoin Stock-to-Flow chart
On the above bitcoin chart, price is overlaid on top of the stock-to-flow ratio line. We can see that price has continued to follow the stock-to-flow of Bitcoin over time. The theory, therefore, suggests that we can project where price may go by observing the projected stock-to-flow line, which can be calculated as we know the approximate mining schedule of future Bitcoin mining.
The colorful dots on the price line of this chart indicate the number of days until the next Bitcoin halving (or ‘halvening’) event.
Overall, the stock-to-flow model is a useful tool that can be used to forecast the future prices of Bitcoin. There are many other forecasting tools available as well, however the stock-to-flow model with its focus on the supply schedule of Bitcoin has proven very popular over time.