Stock-to-Flow
A scarcity model that divides an asset's existing total supply (stock) by its annual rate of new production (flow), used to argue that increasing scarcity should raise value.
Stock-to-flow is a model, borrowed from commodities like gold, that measures scarcity by dividing an asset's existing total supply (the "stock") by the amount newly produced each year (the "flow"). A higher stock-to-flow ratio means new supply is small relative to what already exists, implying slower dilution of existing holders — proponents of applying the model to Bitcoin argue that each halving (see Kaavon's "Halving" glossary definition) sharply raises its stock-to-flow ratio, and that historically higher stock-to-flow has correlated with higher valuation across scarce assets.
The stock-to-flow model, as applied to Bitcoin price prediction specifically, has drawn significant criticism for treating a historical correlation across a small number of past halving cycles as a reliable predictive law, and for not accounting for demand-side factors at all — scarcity alone doesn't guarantee value without sufficient demand, and the model's specific price projections have at times diverged sharply from actual market behavior. It remains a widely discussed framework for thinking qualitatively about supply scarcity, even among those skeptical of its specific quantitative price predictions.
Examples
- Bitcoin's stock-to-flow ratio increases sharply at each halving, since the flow (newly mined supply) is cut in half while the existing stock changes comparatively little.
- Critics of the stock-to-flow model note that it models supply scarcity alone and doesn't account for demand, which is at least equally important in determining an asset's actual market value.