Stock-to-flow is a statistical and financial model designed for commodities. It analyzes an entity's scarcity and helps in predicting future prices using the stock's current supply and yearly inflation (flow). Let's take a closer look.
What Is the Stock-to-Flow Model?
The stock-to-flow investment model compares the amount of an asset's present stock to its rate of production or annual mining output. A particular resource's relative abundance or scarcity can be compared using the stock-to-flow ratio.
How to Calculate the Stock-to-Flow Ratio?
It is simple to calculate the stock-to-flow ratio.
formula
Stock-to-Flow (SF) Ratio = stock ÷ flow
Stock here refers to the resource's current state of availability. In the case of gold, its stock would reflect the amount of gold that has already been mined.
The flow would represent the new gold being mined. The stock-to-flow ratio is typically calculated over a 12-month period. As a result, its flow would be an indication of how much mining is anticipated to occur during the following 12 months .
Stock and flow are terms used to describe the quantity of Bitcoin that has been mined so far and the amount that will be mined over the following 12 months.
Everyone who knows how to read computer code may understand how Bitcoin functions because its code is open-source. As a result, we are fully aware of the current Bitcoin supply. Additionally, we know when, and how much, new Bitcoin is created — identifying the supply scarcity.
Currently, over 18 million Bitcoins have been mined. The average time for the production of a new block in the Bitcoin blockchain takes around 10 minutes. As an incentive for the mining efforts, miners are rewarded 6.25 BTC whenever they add a new block of transactions into the blockchain.
This means that 6.25 BTC are created every 10 minutes.
That's 37.5 BTC (6.25/10 minutes × 60 minutes/hour) created every hour, and 900 BTC (37.5/hour x 24 hours/day) created daily.
Therefore, the current annual flow of Bitcoin is 900/day x 365.25 days per year = 328,725 BTC.
As of fall 2021, the circulating supply of BTC was 18.8 million. There is a flow of 0.33 million bitcoins (328,725 ÷ 1,000,000).
This gives Bitcoin a current stock-to-flow ratio of 18.8 million ÷ 0.33 million = 57.
What Is the Stock-to-Flow Model? How to Calculate the Stock-to-Flow Ratio? - Hopefully, this article can help you to get some knowledge.
