Stock-to-Flow

Stock-to-flow comes from commodity analysis. It asks how many years of current production it would take to recreate everything that already exists. Gold scores high because the existing stockpile dwarfs what mining adds each year.

Bitcoin is unusual because the answer is known in advance. The rate of new coins is fixed in the software and halves roughly every four years, so the ratio climbs on a path that can be calculated decades ahead. The indicator's claim is that this predictable scarcity is what sets the price.

Turning the ratio into a price uses a regression, which is a line fitted through past data to describe how two things have moved together. Here it fits scarcity against price across all of Bitcoin's history, then reads off what that relationship implies today.

The chart shows two lines: Bitcoin's price, and the price the indicator implies. Where price sits relative to that line is the whole reading. Above it, Bitcoin trades higher than scarcity alone accounts for. Below it, lower.

The line is refitted as new price history arrives, so it describes the relationship as measured to date rather than a forecast fixed at some point in the past.

Across earlier cycles, price oscillated around the line, crossing above during expansions and below during contractions. Price has also spent extended stretches far from the line.

The indicator has exactly one input. It cannot see demand, interest rates, regulation, or the arrival of new access routes like spot ETFs. Anything that moves price for reasons other than supply is invisible to it, which is worth holding in mind whenever price and the line diverge.

There is also a statistical caveat worth knowing. Both sides of the calculation rise steadily over time, and two series that both trend upward will look strongly related whether or not one drives the other. That makes the apparent strength of the fit weaker evidence than the raw numbers suggest.