S2F Model and Bitcoin Valuation: Controversies, Mechanisms, and Practical Guidelines

The Bitcoin Pricing Dilemma and the Emergence of the S2F Model

Since its inception in 2009, Bitcoin has fundamentally changed people’s understanding of money, becoming the first fully decentralized, transparent digital asset with a predictable supply. However, this pioneering nature also brings extreme volatility—from a high of $69,000 to multiple crashes—making timing difficult for investors. Currently, BTC trades around $88.57K, and this price instability has prompted analysts to seek more scientific evaluation frameworks.

The Stock-to-Flow (S2F) model emerged as a response, drawing analogies from precious metal pricing logic, attempting to explain cryptocurrency value based on “scarcity.” This methodology has gained widespread attention in the investment community, especially driven by advocates like PlanB.

Understanding the Core Logic of Stock-to-Flow

The basic principle of the Stock-to-Flow model is relatively straightforward. It evaluates an asset’s scarcity by comparing two key indicators:

Stock (存量): The total amount of an asset that has been mined and is in circulation. For Bitcoin, this is the total existing BTC.

Flow (流量): The rate of new supply added per unit time. In Bitcoin’s case, this refers to the annual new mined output.

S2F ratio = Stock ÷ Flow

A higher ratio indicates greater scarcity. Gold, with its extremely high S2F value, is regarded as the ultimate store of value—very little new supply is added relative to its large existing stock. Bitcoin’s design aligns with this concept, sharing similarities with gold.

How Bitcoin Benefits from the S2F Logic

Bitcoin’s supply mechanism naturally fits the S2F analytical framework. Its maximum supply is capped at 21 million coins, and through a four-year halving cycle, the flow (new issuance) continually decreases. The latest halving occurs in 2024, reducing mining rewards from 6.25 BTC to 3.125 BTC, directly increasing the S2F ratio.

This structural scarcity should theoretically strengthen Bitcoin’s value support. Each halving marks a critical point—ceasing new supply means the stock grows relative to flow, which, according to the S2F logic, should drive prices upward. Historical data shows that after the 2016 and 2020 halvings, Bitcoin indeed experienced significant price increases.

Multiple Factors Affecting Bitcoin’s S2F

Besides the scheduled halving cycles, several variables can alter the actual performance of S2F:

Mining Difficulty Adjustment: The Bitcoin network automatically adjusts mining difficulty every two weeks to maintain a 10-minute block time. An increase in difficulty slows BTC output rate; a decrease accelerates it—directly impacting the flow metric.

Market Adoption Expansion: Growing institutional recognition, increased payment use cases, entry into emerging markets—all can boost demand. With supply fixed, demand expansion should reinforce the S2F’s value support.

Regulatory Environment Evolution: Shifts from bans to friendly policies, or even some countries including BTC as reserve assets, can significantly influence market participation and holding willingness.

Technological Innovations: Advancements like Layer 2 scaling solutions, privacy enhancements, etc., may improve BTC’s utility and attractiveness.

Sentiment Fluctuations: Macroeconomic cycles, geopolitical shocks, media coverage—these exogenous factors often dominate short-term price movements, and the S2F model has limited capacity to capture such factors.

Increased Competition: Iterations of other cryptocurrencies with different functionalities may divert investment demand away from Bitcoin.

These factors collectively shape the supply-demand dynamics, influencing the S2F’s ability to translate scarcity into value.

Historical Performance of S2F’s Predictive Power

Proponents like PlanB have made bold predictions based on the S2F model: after the 2024 halving, BTC could reach $55,000, and by the end of 2025, possibly approach $1 million. These forecasts have sparked widespread discussion.

Historically, the S2F model has performed reasonably well in capturing price trends near halving cycles. In most cases, the overall price movement aligns with the increasing scarcity indicated by S2F. However, short-term deviations are frequent, and the model struggles to precisely predict specific price levels and timing.

Skepticism from Academia and Industry

It is worth noting that the S2F model has faced criticism from various quarters:

Vitalik Buterin (Ethereum co-founder) publicly called the model “quite bad,” citing its linear extrapolation and neglect of demand-side factors as fundamental flaws.

Adam Back (CEO of Blockstream) acknowledges the basic logic of S2F but emphasizes that it is merely fitting historical data, with questionable extrapolation ability.

Cory Clippsten and Alex Krueger, among industry insiders, worry that PlanB’s forecasts could mislead followers, criticizing the method as “essentially meaningless.”

The consensus is that S2F oversimplifies market complexity, reducing value to a single dimension, and neglects utility, adoption, macroeconomic factors, and other influences.

Practical Application of S2F in Investment Decisions

For investors wishing to incorporate the S2F framework, the following suggestions may be helpful:

Step 1: Deeply Understand the Principles
Avoid blindly following price predictions. Truly grasp how stock, flow, and scarcity interact to judge when the model is applicable or fails.

Step 2: Historical Benchmarking
Review past halving cycles to see if prices responded as expected. But also recognize: past performance does not guarantee future results.

Step 3: Multi-Dimensional Analysis
Use S2F as one tool in your toolkit, not the sole guide. Combine with technical analysis (support levels, trend lines), fundamental metrics (active addresses, on-chain transaction volume), and sentiment indicators (Fear & Greed Index) to build a more robust judgment framework.

Step 4: Track External Events
Monitor policy changes, technological upgrades, macroeconomic data—these often influence prices more rapidly than changes in the S2F ratio.

Step 5: Prioritize Risk Management
Set stop-loss points, control position sizes, and stagger entries—these principles are more important than any model.

Step 6: Cultivate a Long-Term Perspective
S2F is more suited for medium- to long-term thinking. Short-term traders may find its predictions too inaccurate; long-term investors can tolerate volatility, waiting for scarcity logic to play out.

Step 7: Regularly Review and Iterate
The crypto market evolves rapidly. Periodically evaluate your strategy’s effectiveness and adjust parameters based on new information—mechanical dogma is dangerous.

The Inherent Limitations of the Model Cannot Be Ignored

While the S2F framework is innovative, its limitations are also evident:

Blind Spots to External Variables:
It focuses on scarcity but ignores key drivers like technological progress, policy shifts, or economic downturns—these are often the true sources of price volatility.

Overfitting Risks:
Although the model fits historical data well, this may reflect over-optimization. When market structures change, predictive power can diminish significantly.

Demand Side Neglect:
Focusing solely on supply ignores demand, which ultimately determines value. Bitcoin’s worth depends on the number of willing buyers and their bid prices, not just stock.

Nonlinear Prediction Traps:
S2F assumes a certain deterministic relationship between scarcity and price, but markets are full of nonlinear jumps. Black swan events and sentiment reversals often shatter all quantitative models.

Misleading Beginners:
Overly optimistic forecasts (e.g., $1 million target) that fail to materialize can damage new investors’ confidence or lead to poor decisions.

Multiple Perspectives on Bitcoin’s Future

Looking ahead, S2F is just one of many viewpoints. Some believe scarcity will ultimately prevail; others argue that adoption and utility are more critical; yet others worry about regulatory risks and competition.

From Hal Finney’s early $10 million target to ARK Invest’s $1 million by 2030, market expectations for Bitcoin’s upper valuation are high, but these are based on specific assumptions rather than certainty.

The actual price trajectory of Bitcoin is likely to be determined by the complex interplay of scarcity, technological innovation, market sentiment, and macroeconomic cycles. No single model can fully predict this intricate system.

Overall Recommendations

The S2F model offers an interesting conceptual framework—comparing crypto assets to precious metals to assess value. But investors should always remember: models are simplifications, and reality is more complex. When applying any quantitative framework, maintain a critical mindset, verify with multiple sources, and prioritize risk management. The story of Bitcoin is far from over, and S2F is just one chapter, not the entire script.