How Does the “Stock-to-Flow” Model Attempt to Value Scarce Cryptocurrencies?
The Stock-to-Flow (S2F) model attempts to quantify the scarcity of a commodity by dividing the current circulating supply (Stock) by the annual production (Flow). A higher S2F ratio indicates greater scarcity.
Proponents use this model to forecast the long-term price of scarce assets like Bitcoin, arguing that the price should increase as the S2F ratio rises following halving events. It is a controversial, but popular, valuation method.
Glossar
Scarce Assets
Characteristic ⎊ Scarce Assets are cryptocurrencies distinguished by a verifiable, mathematically enforced limit on their total supply or a highly predictable, decelerating issuance schedule, fundamentally embodying digital scarcity.
Stock-to-Flow
Flow ⎊ The Stock-to-Flow (S2F) model, initially popularized within the Bitcoin community, posits a relationship between an asset's market capitalization and its scarcity, quantified by its stock (total supply) and flow (rate of new supply issuance).