Where all those $100,000 Bitcoin price predictions are coming from
Like with any other asset, people are constantly discussing Bitcoin’s price and where it might go. The stock to flow model has been at the heart of that debate for a while now, and although many dispute it’s validity, we should at least understand what it is and where it comes from.
What is stock to flow (SF)?
The stock to flow ratio is nothing new and has existed as a price analysis tool for decades. It’s most commonly used for natural resources, especially metals like gold and silver. The ratio describes the relationship between the supply that’s already part of the market (stock) and the new supply coming in (flow).
Let’s take gold as an example. The exact amount of above-ground gold worldwide is difficult to determine, but the number is estimated to be around 200.000 tons (in 2020). That number increases by 2500–3000 tons each year through mining operations around the globe.
To get the stock-to-flow ratio for gold we divide stock by flow:
200.000/2.500 = 80
200.000/3.000 = 66,6…
We now know the ratio is anywhere between 66,6 and 80, depending on the amount mined per year. But what is that number telling us?
If we assume a flow of 3000, the stock-to-flow ratio shows us that it would take 66,6 years to mine the amount that’s already above ground and therefore double the global gold supply. It’s a way of calculating inflation, which drives the price of the already existing stock down.
Gold has been considered the best store of value throughout most of history, and having the highest stock-to-flow ratio out of any commodity has definitely helped.

Same demand but higher SF ratio = better store of value.
Stock-to-flow applied to Bitcoin
While the flow of gold varies from year to year and can only be estimated, Bitcoin’s supply is mathematically provable. That means we don’t need to guess; we can take a look at the protocol to know exactly how many Bitcoins will exist 100 years from now.
Bitcoin mining differs from gold or other commodities in that the reward gets smaller with time until the maximum amount of 21.000.000 is reached. There are a few things we need to take into consideration before applying stock-to-flow.
The math behind the mining returns
The process of mining Bitcoin is used to secure the network and distribute the coins.
In this post, we’ll ignore the aspect of securing the network as it’s not relevant to stock-to-flow and focus solely on the distribution.
The cost of mining is measured in computational power. You basically exchange hardware, electricity, and time for mining a “block,” which gives you Bitcoin as a reward.
Mining difficulty
The first difference between commodities like gold or silver and Bitcoin is the mining difficulty. Suppose the total amount of resources spent to mine gold increases, so does the reward. The more people are mining for gold, the more gold will be mined. Cost and reward are proportional.
In Bitcoin, that’s not the case. The algorithm ensures that the total amount of new Bitcoin stays at a set rate, no matter how many resources are spent on mining. That means that not the reward but the difficulty increases in proportion to the total amount of computational power in the network.
The Bitcoin halving
Another important point is that each block’s reward gets cut in half every 200.000 blocks, which (with around 10 minutes per block) is almost exactly every four years. It started with 50 Bitcoin in 2009 and is now at 6,25 Bitcoin since May 2020.
So the flow we get is not only constant; it decreases over time until the last decimal point of the Bitcoin price reaches 0 after 33 halvings in 2140.
With this information, we get a stock-to-flow ratio that increases substantially over time. Bitcoin’s current ratio is at 52, which is still less than gold, but it will climb to 113 after the next halving in 2024 and continue to rise after that.
Who is PlanB, and what is his model?
PlanB is a Twitter user with the handle @100trillionUSD. He appeared on different podcasts but wants to keep his real identity anonymous. PlanB published a model for Bitcoin valuation based on the stock-to-flow ratio in early 2019 on Medium. You can find his article here.

Oversimplified: PlanB made a logarithmic chart where x = stock-to-flow ratio and y = market value. He then plotted the Bitcoin data over the last decade on it. By fitting a linear regression to the data, he found, in his own words, “a statistically significant relationship between SF (stock-to-flow) and market value.”
Since the last halving in May 2020, the stock-to-flow ratio for Bitcoin is 52, which would suggest a market value of one trillion and a price of about 100.000$ per Bitcoin. As of now (04.11.2020), the price is hovering right below 14.000$, but many believe it will climb to the predicted value before the next halving occurs.
You can see the price predictions of the model in the chart below.

Arguments against the model
PlanB’s publication spread like wildfire through the Bitcoin community, which is not surprising considering its rosy predictions for the future. However, not everyone is in support of the model. In fact, many came out and questioned the validity of PlanB’s findings. After all, it’s statistics, and you’ve probably heard about the rule, “correlation does not equal causation.” To see if the model is useful, we have to look for holes and problems that could cause the findings to be biased.
1 BTC = 235.000.000.000$ in 2045
In an article published on Coindesk titled “Why the Stock-to-Flow Bitcoin Valuation Model Is Wrong,” the author, Nico Cordeiro, points out that based on the model, one Bitcoin would reach a price of 235 billion dollars by 2045. That would equate to a market value that’s a few thousand times bigger than the GWP (gross world product) of today, which is quite obviously impossible.
That doesn’t mean that the model is completely wrong, but it suggests an upper limit, after which we can no longer rely on stock-to-flow values for our prediction.
The data points for gold and silver are misleading.
The chart we showed earlier contains two entries for gold and silver, which seem to also correlate with the linear regression of the Bitcoin data. The problem here is that a single data point isn’t indicative of anything. If we take gold data over the last 115 years and plot it on the chart, we can clearly see that the correlation has nothing to do with the stock-to-flow ratio and is more chance than anything else.

“Couch potatoes” change the stock-to-flow ratio.
ByteTree’s co-founder and chief investment officer, Charlie Morris, released an article titled “Challenging the Stock to Flow Model Created by Plan ₿,” He talks about the things that the model is missing.
He argues that network activity is key to Bitcoin’s valuation. “Couch potatoes,” meaning coins that haven’t been moved in a long time, add no value and should be excluded from the SF ratio. Using the remaining “active stock” for our calculations would mean a significant drop in the SF ratio and changes the dynamic of PlanB’s model.
You can see the so-called “HODL waves” provided by Glassnode in the chart below. It shows that more than 50% of Bitcoin stock hasn’t been moved in over a year.

Conclusion
The stock-to-flow model is an attempt to predict the future of Bitcoin’s price by looking at the incoming supply. It seems to show a correlation between the SF ratio and market value. There are obvious limits and more subtle problems to that approach, but it’s nevertheless an interesting attempt at the search for Bitcoin’s fair value.
It’s important to realize that statistics and models are often misleading because they look at certain aspects of something in isolation. They can still contribute to a “bigger picture,” but we have to understand their limits first. If the stock-to-flow model by PlanB holds up remains to be seen, but it can definitely be a good starting point for discussion.
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