What Is Stock To Flow?
Stock To Flow (S2F) is a measure of the current supply of a commodity (the stock) relative to the new supply (the flow). It is often used as a predictor of inflation, as a higher stock to flow ratio indicates that there is less new supply relative to the current supply, making the commodity more scarce and therefore more valuable over time.
A higher S2F ratio also indicates that the commodity is more difficult to produce, making it more resistant to inflation. As such, S2F is often used as a measure of the hardness of moneyWhat Is Money? Money is a tool that enables humans to perform 3 basic functions: store value, exchange value, and account for value. In order for money to perform its.... Despite its usefulness, however, S2F is not perfect and cannot be used to predict the future price of an asset. For example, it does not account for changes in demand, which can impact prices even if there is no change in supply. Nevertheless, S2F is a useful tool for understanding the relative scarcity of a commodity and predicting its ability to store value over time.
Understanding Bitcoin’s Stock To Flow
When it comes to discussing the supply of Bitcoin, there are two key concepts to understand: the circulating supply and the total supply.
Bitcoin’s stock refers to the total number of bitcoins that are currently in circulation, while total supply refers to the hard-capped 21 million bitcoin that will ever be mined.
Bitcoin’s flow refers to the number of new bitcoin that are mined each year.
With the current supply of bitcoin (the stock) at just over 19 million and the flow ~328,500 new bitcoin issued via the block subsidy every year, the stock to flow ratio of bitcoin is ~57 and will continue to increase with each halving that occurs every 210,000 blocks (approximately 4 years).
The higher the S2F ratio, the harder the money, and the more likely it is to store value long into the future.
Increasing Stock and Reducing Flow
What makes Bitcoin so unique compared to other historic hard money like gold is that the total supply of bitcoin is known in advance. The total supply of Gold is somewhat unpredictable here on earth and an even more unpredictable in space. In contrast, the total supply of bitcoin is hard-capped at 21 million bitcoin and the flow of newly mined bitcoin is known by the entire network as soon as each block is mined.
Furthermore, the flow of bitcoin is set to continually slow down every 210,000 blocks with each halving of the block subsidy. This predetermined and transparent reduction in the supply of new bitcoin ensures that Bitcoin’s S2F ratio will continue to climb over time to exceed any other store of value in the world.