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.