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.
- 1 The Bitcoin Stock to Flow model explained.
- 2 S2F model explained.
- 3 The scarcity of Bitcoin explained.
- 4 What is Bitcoin mining?
The Bitcoin Stock to Flow model explained.
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.
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.
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.