Clear DefinitionsStock-to-Flow Model
1 min read
Pronunciation
[stok to floh moh-dl]
Analogy
Like assessing the value of a lake by comparing its water volume to the yearly inflow from rivers.
Definition
A scarcity-based valuation model that compares the existing supply (stock) of an asset to its annual production (flow) to predict price based on supply dynamics.
Key Points Intro
The stock-to-flow model links asset scarcity to long-term price trends.
Key Points
Stock: total outstanding supply of the asset
Flow: newly produced units per time period
Ratio: stock divided by flow indicates scarcity
Predictive: historically correlates with price for scarce assets
Example
Technical Deep Dive
Define S2F = stock/flow; for Bitcoin, stock is current circulating BTC, flow is 6.25 BTC * blocks per day * 365. Regression analysis fits log(price) = a + b·log(S2F). Critics note overfitting and failure during supply regime changes.
Caveat
Correlation does not imply causation; real-world factors can deviate from model predictions.
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