Bitcoin and the Stock to Flow Model | Binance Academy

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What is the 'stock to flow' model and how does it apply to Bitcoin? Your answers lie here 👇

We can calculate the Stock to Flow ratio using these two metrics. But what does it actually mean? It essentially shows how much supply enters the market each year for a given resource relative to the total supply. The higher the Stock to Flow ratio, the less new supply enters the market relative to the total supply. As such, an asset with a higher Stock to Flow ratio should, in theory, retain its value well over the long-term.

In contrast, consumable goods and industrial commodities will typically have a low Stock to Flow ratio. Why is that? Since their value typically comes from them being destroyed or consumed, the inventories are usually only there to cover demand. These resources don’t necessarily have high value as possessions, so they tend to work poorly as investment assets.

It’s important to note that scarcity alone doesn’t necessarily mean that a resource should be valuable. Gold, for example, isn’t all that rare – after all, there are 190,000 tons available! The Stock to Flow ratio suggests that it’s valuable becauseWhat is the Stock to Flow ratio of gold? Historically, gold has had the highest Stock to Flow ratio out of precious metals. But how much is it exactly? Going back to our previous example – let’s divide the total supply of 190,000 tons by 3,200, and we get a Stock to Flow ratio of ~. This tells us that at the current production rate, it would take around 59 years to mine 190,000 tons of gold.

It’s worth keeping in mind, though, that the estimates for how much new gold will be mined each year are just that – estimates. If we increase the annual production to 3,500, the Stock to Flow ratio decreases to ~While we’re at it, why not calculate the total value of all gold that’s been mined? This, in some ways, can be compared to theof cryptocurrencies. If we take a price of about $1500 per troy ounce of gold, the total value of all gold comes to around $9 trillion.

 

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