Investing in volatile assets such as cryptocurrencies can be tricky since it requires traders to gauge the market 24/7. However, tools like the stock-to-flow (S2F) model can be used to make investments rationally. Just like the traditional capital asset pricing model (CAPM), the S2F model can help anticipate the price of a cryptocurrency like Bitcoin. Let’s understand what is the stock-to-flow (S2F) model and analyze its accuracy for crypto price prediction in this article. Stock-to-flow ratio Explained The S2F ratio provides a number that indicates the number of years crypto will take to reach the current supply (at the current production rate). In general, with the highest number, the crypto asset will be more expensive too. An institutional investor called “Plan B” popularized the concept of the S2F ratio. The SF ratio has a long history of being connected with the price of Bitcoin (BTC), making it a popular approach for predicting future BTC price estimates. Bitcoin is the first and most well-known rare digital object globally, and its supply is limited, just like silver and gold, with only 21 million coins in circulation. The value of Bitcoin increases because of its scarcity, and the S2F takes advantage of this fact to predict Bitcoin’s future price. Bitcoin’s core technology ensures that the number of new coins issued decreases over time, increasing scarcity. The miner who calculates the hash required to validate a blo...
