Stock to Flow: Bitcoin Price Indicator?

By Nicolas Abington | Crescent City Capital Market Analyst Intern

Stock to flow is a common indicator for commodity trading where the amount of supply currently in circulation is being divided by the amount produced in the next given year. The commodity with the highest stock to flow ratio currently is gold with a value of 62. This means that it would take 62 years to produce the same amount of gold as there is in the market today. 

Currently, Bitcoin has a stock to flow ratio of 25. If we were to use the stock to flow ratio model in relation to Bitcoin we would have a price valuation of around $8165 per BTC on the higher band and $5863 at the lower band. The price at the time of writing is $7183 so it’s in the ballpark. PlanB a strong proponent of using STF when evaluating BTC has had a superb record of 99.6% market capitalization prediction. 

That considered the stock to flow ratio focuses on the supply side of Bitcoin while not acknowledging that Bitcoin is also a demand-based asset. Since Bitcoin’s supply and supply growth is extremely predictable the model makes sense and might be able to predict a relative range of where the price will fall. To be able to trade consistently however, demand needs to be taken into account and that’s where the stock to flow ratio seems to fall short in its analytical capabilities. 

Overall PlanB has made some convincing arguments about Bitcoin’s value being tethered to the amount of scarcity in the market and has a proven track record to show it’s merit. Although, the ratio is just one of many indicators traders should use alongside more demand-based ideals so the strategy can have a balanced approach. Bitcoin will show the same as any economics 101 class, a market is made up of both supply and demand.