Bitcoin

Ethereum

<p>The stock to flow, a model typically used for  precious metals, can be applied to BTC. Bitcoin is the first currency  that has been measured with this model due to its scarcity.</p><h2 id="header-0">‍</h2><h2 id="header-1">‍<strong>Introduction to Bitcoin</strong></h2><p>Bitcoin  stock to flow, also known as S2F, attempts to value Bitcoin in ways  similar to other scarce assets like Silver and Gold. The idea is that  scarce commodities have the innate tendencies to store value over the  long term compared to general commodities that can be replicated and  reproduced anytime. The model explains why Bitcoin will retain its value  for a long time, in contrast to what many have speculated. It displays  that this is not a bubble but the face of novelty in the financial and  digital world.</p><h2 id="header-2"><strong>What is Stock to Flow</strong></h2><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/a8a712aaa39e4b93b9b081151a1c742d.jpeg" /></p><p>‍<a href="https://twitter.com/100trillionUSD/status/1364843211857014791/photo/1" rel="noopener noreferrer nofollow">Source</a></p><p>The  S2F model quantifies scarcity by taking the total global supply of a  commodity and dividing it by its annual production. Stock, in this  sense, is the total amount of an entity or resources in existence. The  flow defines the rate of production or entry of the asset class to the  market. A higher S2F indicates a decrease in the flow of the stock.  Taking Gold as an example, the highest number of Gold ever mined is  capped at 190,000 tons; it is estimated that 2,500 -3,200 tons are mined  each year. This attributed scarcity of Gold gives it its value amongst  precious metals. A higher S2F for Gold will mean a decreasing/decreased  number of mined Gold each year relative to its capped supply.</p><p>The  scarcity nature explains why the S2F model does not consider regular  commodities like crude oil, household items, or even groceries and  appliances. In the real sense, the mentioned items, although important,  are not necessarily scarce and would only experience some form of  scarcity in stressed situations. For instance, during the high point of  the Convid-19 virus last year, toilet paper and masks became scarce due  to high demand. Only in such rare and tense situations do we have  general commodities become scarce.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/d30afe361e2c47fe886616fe8eb6d316.png" /></p><p>Although  this model applies to resources, Bitcoin, as a digital cryptocurrency,  is modeled using the S2F model due to its scarcity. This scarcity has  driven its value to its current All Time Highs (ATH). On top of this,  the fact that the amount of mined BTC is halved every four years, giving  the asset class higher S2F ratings.</p><p>‍</p><h2 id="header-3"><strong>Bitcoin Stock to Flow</strong></h2><p>The  S2F model considers Bitcoin a scarce commodity similar to gold and  silver due to its scarce nature. Only 21 million BTC exists. About 900  new coins are mined each day which translates into 325,500 each year;  this gives Bitcoin an S2F of approximately 64.5, i.e., divide the total  capped supply over the flow of 325,500 BTC each year (21000000/325500 &#61;  64.5).</p><p>Although the original model of the Bitcoin S2F is based on  historical price data, monthly S2F, and price data, it was recently  adapted to a new model (S2FX). This model took away time and added other  assets (Silver and Gold), adopted by <a href="https://medium.com/&#64;100trillionUSD" rel="noopener noreferrer nofollow">Plan B</a> in this <a href="https://medium.com/&#64;100trillionUSD/bitcoin-stock-to-flow-cross-asset-model-50d260feed12" rel="noopener noreferrer nofollow">medium post</a>. Since it has retained its value over time, it only makes further sense to view the model from other assets’ correlation.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/3dfd3c6b07334dca96366a9ba6930999.png" /></p><p>Compared  to Gold, whose S2F is about 55.9 and Silver 22. Bitcoin S2F at 64.5  gives an overview of a reducing flow of total supply, caused by the  halving event done every four years and made possible by <a href="https://en.wikipedia.org/wiki/Satoshi_Nakamoto" rel="noopener noreferrer nofollow">Satoshi Nakomoto</a> - Bitcoin inventor(s).</p><h2 id="header-4"><strong>Bitcoin Halving</strong></h2><p>Satoshi  Nakomoto created Bitcoin in early 2009, the first-ever digital currency  adopted by the S2F model. Its code can split its reward into half every  four years, ensuring that new supply shrinks over time. Every 210,000  blocks or four years, miners’ reward for minting new coins gets <a href="https://www.investopedia.com/bitcoin-halving-4843769" rel="noopener noreferrer nofollow">halved</a>.  The event reduces the available supply, making it the first-ever  currency/commodity to achieve provable and programmable scarcity. Not  even Gold or Silver, two of the world’s most valued assets, have this  property.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/e33aae7c2f934614bbe0091d2be1e4c8.png" /></p><p>Despite  all of its strong appeals, Bitcoin still has many opposing views. These  financial analysts haven’t completely embraced the Bitcoin  cryptocurrency technology and only view the currency as a mass  speculation tool. The S2F model for Bitcoin is not without its  weaknesses.</p><p>‍</p><h2 id="header-5"><strong>Weaknesses of the Bitcoin Stock to Flow Model</strong></h2><p>One  property of Bitcoin that has made many analysts doubt the Bitcoin S2F  model is that the asset is notoriously volatile. New events can create a  spike at any time. At the same time, the S2F model is only strong as  its assumption. The assumption that Bitcoin will remain valuable due to  its scarce nature could easily be faulted. As Black Swan event, an  element of surprise is real, and since the S2F model can not account for  such circumstances, the model has often faced strong criticisms.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/35041d46331845b5af9c3929927f7bf4.jpeg" /></p><h2 id="header-6"><strong>In Conclusion</strong></h2><p>There  is no doubt about the scarce nature and halving of Bitcoin will  continue into the 2040s, as many Bitcoin proponents like Nick Szabo have  predicted. Bitcoin retains its value through scarcity on top of the  numerous adoptions and uses cases that have been built using crypto.  Overall, this has brought a new wave of firm believers the technology  has never witnessed before.</p><p>The stock to flow, a model typically  used for precious metals, can be applied to BTC. Bitcoin is the first  currency that has been measured with this model due to its scarcity.  However, a model is only strong as its assumption and may not account  for all aspects of Bitcoin valuation. Seeing that the currency is only a  little over ten years in existence, the historical data is not as broad  as Gold or Silver.</p><p></p><p>Visit <a href="https://www.bsc.news" rel="noopener noreferrer nofollow">bsc.news</a> for more insightful articles.</p>

How to Read the Bitcoin Stock-to- Flow Model

Table of Contents

BSCN

Other articles published on Apr 22, 2023

Coinbase Gets Bermuda License, Offshore Exchange Could Launch Next Week: Report

Bitcoin Whale moves 10-year-old Bitcoin stash

Majority of Americans See AI as a Threat to Workers

Bitcoin Price Analysis: BTC Breaks Below $28,000 as Bears Take Control

Gemini Set To Launch Crypto Derivatives Platform Outside The US

Polkadot price analysis: DOT crashes to $ 5.90 as market sentiment turns negative

Join our free newsletter for daily crypto updates!