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The price of Bitcoin (BTC) is quite a rollercoaster ride. This year alone, the original crypto has bounced around from a high of $47,000 to trading at just above $20,000 nowadays.
Where will Bitcoin go next? That’s a very tough question, and one of the most common ways of answering it is by consulting the stock-to-flow model.
Bitcoin’s built-in digital scarcity makes it similar in certain ways to commodities like gold or silver. In theory, that makes stock-to-flow a good fit for forecasting Bitcoin prices.
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What Is Stock to Flow?
The stock-to-flow model is commonly used to price commodities. As its name suggests, the model assesses two attributes: stock and flow.
Stock is the total existing supply of a commodity. Flow is the new supply of the commodity that is created each year. Comparing these two attributes helps you assess the commodity’s relative abundance.
Let’s take gold as an example. Approximately 187,000 metric tonnes of gold have been mined in history—this is the stock of gold. It’s virtually impossible to destroy gold, so most of this stock is still around.
Now let’s look at how much gold is mined annually. Around 3,000 tonnes of gold is mined each year, according to the World Gold Council. This comprises the flow side of the model.
Divide the stock by the flow to get gold’s stock-to-flow ratio. The equation looks a little something like this:
187,000 / 3,000 = 62.3
That ratio means it takes approximately 62 years to acquire the total amount of gold currently in existence. The higher…
