The stock to flow model treats Bitcoin comparable to commodities such as platinum, silver, and gold. These ‘store-to-value’ commodities would retain their value for a significant length of time. The primary reason would be their scarcity in the market. Rest assured, increasing bitcoin stock supply is very difficult. It implies that the searching process for gold and the mining process would burn a considerable hole in your pocket and is highly time-consuming.
Bitcoin is scarce and almost the same as the commodities mentioned above. It would be pertinent to suggest here that Bitcoin is the first scant digital object in existence. You would come across a plethora of coins. It would take a lot of computing efforts and electricity for mining the three million outstanding coins available online. As a result, the supply rate has been consistently lower.
Use of stock-to-flow ratio
The stock-to-flow ratio would be used for evaluating the available stock of the commodity. In other words, it would be used for evaluation of the entire amount presently available. It would be done against the flow of the latest production of coins or the number of coins mined in a specific year. If you were searching for a store of value commodities inclusive of platinum, silver, and gold, rest assured that the higher ratio would indicate their non-consumption in industrial applications.
A majority of it would be stored as a monetary hedge. It would drive up the stock-to-flow ratio. Having a higher ratio would increase the scarcity of the commodity. The result would be an increased store of value.
Understanding stock-to-flow Bitcoin
The stock-to-flow states the scarcity of Bitcoins measured by SF (stock/flow). It would drive the market value of the Bitcoins directly. The ‘stock’ would be the total size of the existing stockpiles or the reserves of the asset. On the other hand, the ‘flow’ would be the annual production.
The world presently has 16.8 million of Bitcoins or the ‘stock.’ The annual mining or the annual supply of Bitcoins in the world equals 0.7 million, also known as the ‘flow.’ To calculate the SF ration of Bitcoin, you would be required to divide the stock with the flow. It would help you acquire the precise SF ratio. With Bitcoin SF at 24, it would mean with the present rate of production would take nearly 24 years to replenish the available stock of Bitcoin worldwide.