Stock to Flow Overlay
The Stock to Flow overlay (often shortened to S2F) is a Cryptowatch overlay that expresses the relationship between production (flow) and current supply (stock). Stock-to-flow ratios calculate the value of the current supply of a commodity against the rate that it can be produced. This model is based on the hypothesis that scarcity drives value — as production rates decrease, scarcity increases, and existing stock becomes more valuable.
Using Bitcoin as an example, we know that the supply is fixed (21 million bitcoins) and the production rate is reduced by half every 210,000 blocks (every 4 years, roughly). By applying the Stock to Flow overlay to a BTC/USD chart, we can see that Bitcoin’s inherent flow reduction from each halving has a positive impact on the value of the asset.
The Stock to Flow overlay in Kraken’s BTC/USD market, 2016 to present, set to default inputs.
This overlay is best visualized on long-term candle periods (3 days to 1 week) using a logarithmic scale. The overlay derives its projections from available stock over a period which can be defined in the Inputs tab in the Analysis menu. The default data range is 365 days previous to the current date.
When we apply this overlay to BTC/USD, the halvings (dates when block rewards are reduced by half) are very apparent in the projection. This is because the flow rate (production rate) of new coins decreases by half at each instance, which increases the scarcity of the current supply. We can see this trend continuing alongside future halving dates:
The Stock to Flow overlay in Kraken’s BTC/USD market, present to 2025, set to default inputs.
The center line in the overlay shows the model’s price forecast at any given point in time. The Stock to Flow model — without factoring in coins lost from Bitcoin’s total supply — forcasts the price of Bitcoin will reach an average of roughly $100,000 in May/June 2021, then $130,000 after the halving in March/April 2024.
We can edit the inputs of this overlay in the Analysis menu. The three input fields are defined here:
These are the default field inputs for the Stock to Flow overlay.
After adjusting the
Lost Coins %input we can see the projection is unchanged along the x-axis, but has adjusted down on the y-axis:
The Stock to Flow overlay, with lost coins factored in.
With lost bitcoins taken into consideration, the model forecasts roughly $55,000 per bitcoin in May/June 2021, then $75,000 after the halving in March/April 2024.
If Bitcoin trends towards these milestones in the coming months and years, the Stock to Flow model may prove to be an accurate model of Bitcoin’s future value.