The Stock-to-Flow (S2F) & Bitcoin.
The Stock-to-Flow (S2F) model, originally designed for commodities, has found application in assessing the scarcity and potential valuation of Bitcoin.
Here's how it is used for Bitcoin:
Scarcity Assessment: The S2F model evaluates Bitcoin's scarcity by comparing its existing stock (circulating supply) to the flow (new production or issuance). Bitcoin's predetermined issuance schedule, characterized by halving events approximately every four years, influences its S2F ratio.
Historical Correlation: Proponents of the S2F model argue that there is a historical correlation between Bitcoin's scarcity, as measured by S2F, and its market value. The model suggests that as Bitcoin becomes scarcer due to halvings, its price tends to increase.
Price Prediction: Advocates use the S2F ratio to make predictions about Bitcoin's future price movements. The higher the S2F ratio, the scarcer the asset, and, according to the model, the higher the potential future value.
Comparisons to Commodities: The S2F model treats Bitcoin similarly to commodities like gold and silver, which are considered "store of value" assets. The rationale is that these assets share characteristics related to scarcity and the cost of production.
Plan B's Contribution: The S2F model gained popularity through the work of an anonymous analyst known as Plan B, who applied it to Bitcoin, emphasizing the asset's scarcity as a key driver of its value.