The Stock-to-Flow model uses Bitcoin’s limited supply as a possible indicator of price. At a basic level, Bitcoin is somewhat similar to gold or diamonds. Over time, these two commodities’ prices have risen due to their scarcity. This factor lets investors use them as stores of value.

If you take the total circulating global supply (stock) and divide it by the total amount produced by year (flow), you can use this ratio to model Bitcoin’s price over time. We already know the exact amount of new bitcoins miners will generate and roughly when they will receive them. Put simply, mining returns are decreasing, and this creates an increasing stock-to-flow ratio.

Stock to Flow has proven popular due to its accuracy so far in modeling Bitcoin’s price history. You can see below a 365-day SMA and Bitcoin’s historical price data and the prediction it gives going into the future.

The model does have some drawbacks. Over time, when Bitcoin’s flow reaches zero, the model will eventually break as you can’t divide by zero. This calculation gives implausible price predictions that tend to infinity. You can read more about Stock to Flow’s advantages and disadvantages in our Bitcoin and the Stock to Flow Model article.