# Bitcoin Stock to Flow Model Explained - S2F

## Bitcoin and the S2F model.

in this article we are going to explain the meaning and the use of the stock to flow model on Bitcoin prediction. In fact, this simple mathematical model was firstly introduced by Plan B and it is current on the model used for price prediction of Bitcoin value.

### The Bitcoin Stock to Flow model explained.

The Stock to Flow model reports the price of Bitcoin ove the years. The price of Bitcoin is estimated according to the stock to flow ratio. In fact, it is not possible to copy or forge Bitcoins, and the total supply is
strictly limited. All transactions are written in blocks, i.e ‘the
blockchain’, and nobody can spend coins that belong to someone else’s

#### The scarcity influence on commodities like gold and Bitcoin.

The dictionary definition of scarcity is when something is difficult to come across in nature or in the lab; very similarly to precious metals. Once something becomes scarce enough, it can be used as a money. Stock to flow (SF) is defined as a relationship between production and current stock that is out there.
SF=Stock / Flow

#### Bitcon Stock and Flow.

The stock-to-flow is the number that we get when we divide the total stock by yearly production (flow). It tells us how many years are required, at the current production rate, in order to produce what’s in the current stock. An example of stock-to-flow for metals is reported below.

### S2F model explained.

We can see that price has continued to follow the Bitcoin stock-to-flow over time. TWe 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 graph of Stock to Flow model.

The coloured dots on the price line of this chart show the number of days until the next Bitcoin halving (sometimes called ‘halvening’) event. This is an event where the reward for mining new blocks is halved, meaning miners receive 50% fewer bitcoins for verifying transactions. Bitcoin halvings are scheduled to occur every 210,000 blocks – roughly every four years – until the maximum supply of 21 million bitcoins has been generated by the network. That makes stock-to-flow ratio (scarcity) higher so in theory price should go up. This has held true previously in Bitcoin’s history. You can check the daily updated chart here.

### The scarcity of Bitcoin explained.

The main core of Bitcoin is that supply is fixed and limited. New bitcoins are created with ‘mining’. However, the subsidy (the block rewards consisting of fees that a miner receives for extracting bitcoins) is halved every 210’000 blocks (about 4 years). These events are very important for Bitcoin trends as they reduce the supply growth rate (the stepped yellow line on the graph below). As you may appreciate the total amount of Bitcoin that can be extracted is not limitless, but there’s a limit of total 26 millions Bitcoin.

The S2F model has been developed by Plan B. The model is based on the data of the last 2 halving of the period 2009-2019. According to PlanB, the price of Bitcoin should hit at least \$100’000 by the end of 2021.

### What is Bitcoin mining?

Bitcoin mining is the process of creating new bitcoin by solving a computational puzzle. Bitcoin mining is necessary to maintain the ledger of transactions upon which Bitcoin is based.

#### Bitcoin mining and transactions.

When computers solve these complex math problems on the Bitcoin network, they produce new bitcoin (not unlike when a mining operation extracts gold from the ground). And second, by solving computational math problems, bitcoin miners make the Bitcoin payment network trustworthy and secure by verifying its transaction information.

#### Bitcoin transaction explained.

When someone sends bitcoin anywhere, it’s called a transaction. Transactions made in-store or online are documented by banks, point-of-sale systems, and physical receipts. Bitcoin miners achieve the same thing by clumping transactions together in “blocks” and adding them to a public record called a blockchain. Nodes then maintain records of those blocks so that they can be verified into the future.