Origins of the S2F Model
In March 2019, a pseudonymous Dutch institutional investor known as PlanB published "Modeling Bitcoin's Value with Scarcity," one of the most influential Bitcoin analysis pieces ever written. The paper applied the stock-to-flow ratio — a concept long used in commodity analysis — to Bitcoin's fixed supply schedule. Stock-to-flow (S2F) is calculated by dividing the existing supply of an asset by its annual production rate.
Gold has a S2F ratio of approximately 62, meaning it would take 62 years of current production to double the existing supply. Silver's S2F is around 22. After the 2024 halving, Bitcoin's S2F exceeded 120, making it the scarcest asset by this measure. PlanB's key insight was plotting Bitcoin's S2F against its market capitalization over time and finding a strong logarithmic relationship (R-squared of 0.95), suggesting that scarcity is the primary driver of Bitcoin's value.
The Model's Methodology and Predictions
The S2F model uses a power law regression between Bitcoin's stock-to-flow ratio and its market capitalization. Because Bitcoin's S2F doubles with each halving (the flow is cut in half while the stock continues to grow), the model predicts that each halving cycle should produce a roughly 10x increase in market capitalization. PlanB's original model predicted Bitcoin would reach $55,000 after the 2020 halving and $500,000–$1,000,000 after the 2024 halving.
In 2020, PlanB published an updated S2FX (cross-asset) model that grouped Bitcoin with gold and silver on the same scarcity-value plot. This version treated Bitcoin as transitioning through "phases" (proof of concept, payments, e-gold, financial asset) similar to how gold transitioned from ornament to jewelry to money to financial reserve. The S2FX model predicted a $288,000 price target for the 2020–2024 cycle, which attracted enormous attention from investors and media.
Where the Model Got It Right
The S2F model's strength lies in its directional accuracy and explanatory power. Bitcoin's price did increase substantially after each of the first three halvings (2012, 2016, 2020), consistent with the model's prediction that reduced supply issuance drives price appreciation. The 2020–2021 cycle saw Bitcoin rise from approximately $8,500 at the halving to $69,000 at the November 2021 peak — roughly an 8x increase, which was in the neighborhood of the model's predictions.
More broadly, the S2F model provided a coherent narrative for why Bitcoin's price has increased over time. Rather than treating Bitcoin as a speculative bubble, the model frames price increases as a rational market response to programmatic scarcity increases. This framework helped institutional investors understand Bitcoin through the lens of commodity scarcity analysis, a framework they were already familiar with from gold and oil markets.
Criticisms and Limitations
The S2F model has faced substantial and legitimate criticism. The most fundamental issue is sample size: the model is calibrated on only three halving events, which is far too few for reliable statistical inference. As statistician Nico Cordeiro noted, the high R-squared value is partly an artifact of fitting a power law to a monotonically increasing time series with only a few regime changes.
The model also ignores demand entirely, treating scarcity as the sole driver of value. But scarcity alone doesn't create value — there are infinitely many things that are scarce and worthless. Bitcoin's value also depends on adoption, utility, regulatory environment, and macro conditions. Perhaps most damning, the model's predictions became increasingly divorced from reality: the $288,000 S2FX target for the 2020–2024 cycle was not reached, and the model mathematically implies that Bitcoin's price approaches infinity, which is impossible. The S2F model is best understood as a useful but imperfect mental framework for thinking about halvings and scarcity, not as a precise forecasting tool.