Decoding Bitcoin's Scarcity: Why the S2F Model Still Matters for Long-Term Investors

Bitcoin emerged in 2009 as a revolutionary form of digital currency—truly decentralized, transparent, and with a fixed supply. When Bitcoin surged past $69,000 in November 2021, mainstream investors rushed in, only to face the brutal reality of crypto’s cyclical nature. The volatility that defines Bitcoin’s price action presents a genuine puzzle: how do you time your entries when swings of $20,000+ happen without warning? This is where the Stock-to-Flow (S2F) model enters the conversation, offering a mathematical framework for understanding Bitcoin’s value based on a surprisingly simple principle: scarcity.

The Mechanics Behind S2F: Supply Meets Production

At its core, the S2F model borrows a concept from commodity markets—a place where precious metals like gold reign supreme. The math is straightforward: divide the total existing supply (stock) by the annual new production (flow). The higher the resulting ratio, the scarcer the asset, and theoretically, the more valuable it becomes.

For Bitcoin, this calculation takes on special significance. With a hard cap of 21 million coins and halvings that cut mining rewards roughly every four years, Bitcoin’s architecture is engineered to become progressively scarcer. Each halving reduces the flow of new coins hitting the market, widening the S2F ratio and, according to the model’s logic, setting the stage for price appreciation.

What makes this different from other commodities? Bitcoin’s scarcity is mathematical and immutable—no surprise supply surges, no new discoveries. The mining difficulty adjusts every two weeks to keep block production steady, but the ultimate issuance schedule remains locked in code.

Beyond the Halving: What Really Moves the S2F Equation

While halvings grab headlines, they’re just one variable in a far more complex ecosystem. Mining difficulty shifts can alter coin production rates. Regulatory crackdowns can suppress demand or make mining uneconomical in certain regions. The rise of layer-2 solutions like the Lightning Network fundamentally changes how Bitcoin is used—moving it beyond just a store of value toward payment efficiency.

Then there’s the elephant in the room: market sentiment. A positive headline can trigger institutional inflows; a geopolitical shock can trigger panic selling. Competing cryptocurrencies with newer technology continually threaten Bitcoin’s dominance. Macroeconomic conditions—inflation, currency devaluation, recession fears—all play a role in whether investors see Bitcoin as a hedge or a luxury they can’t afford.

The S2F model acknowledges none of this. It’s pure scarcity, abstracted from the messy reality of markets.

The Prediction Problem: PlanB’s Bold Calls vs. Reality

PlanB, the creator of the S2F model, has made eyebrow-raising forecasts: $55,000 around the 2024 halving, potentially $1 million by end-2025. Historically, the model has shown impressive correlation with Bitcoin’s price, particularly around halving cycles. But “impressive” isn’t the same as “accurate.”

The past four years have revealed S2F’s blind spots. Bitcoin didn’t hit $100,000 in the last cycle as the model suggested. The gap between prediction and reality has grown, feeding a debate that’s only intensified in crypto circles.

The Great S2F Debate: Defenders vs. Skeptics

Ethereum co-founder Vitalik Buterin called the S2F model “not looking good” and labeled it “harmful,” citing its oversimplification of supply-demand dynamics. Adam Back, CEO of Blockstream, takes a more measured view—seeing it as a reasonable curve fit to historical data, noting that reduced Bitcoin supply from halvings should logically push prices higher through scarcity mechanics.

Others are harsher. Cory Klippsten of Swan Bitcoin worries the model misleads followers. Alex Krüger, a respected crypto trader and economist, calls the S2F approach “nonsensical” for price prediction. Even Nico Cordeiro, Chief Investment Officer at Strix Leviathan, challenges the model’s fundamental assumption that scarcity alone drives value, pointing out it ignores demand fluctuations and macro conditions.

The consensus among critics: the S2F model captures one variable—scarcity—and ignores everything else.

Why S2F Fails (And Why It Still Matters)

The model’s limitations are substantial. Bitcoin’s value isn’t just about how hard it is to mine new coins. It depends on whether people actually want to use it, whether governments let them, whether competing technologies render it obsolete. The S2F model treats Bitcoin like a commodity—like gold—but Bitcoin is a network, and networks have adoption curves that defy linear relationships.

The model also struggles with near-term trading. Day traders watching S2F ratios will get wrecked by the daily noise that overshadows long-term scarcity trends. It’s a tool for patient capital, not active speculation.

Yet here’s what defenders of S2F won’t let go of: historically, Bitcoin’s major bull markets have coincided with periods when the S2F ratio surged. Coincidence? Maybe. But it’s a pattern that’s hard to ignore completely.

Integrating S2F Into Your Investment Approach (The Right Way)

If you’re considering the S2F model, treat it like one instrument in a diversified toolkit—never the only one.

Start with understanding. Learn how the model works, not just what predictions it makes. Know that it measures scarcity, full stop.

Look at history critically. Yes, Bitcoin has historically correlated with S2F trends around halvings. But also acknowledge where and when it diverged.

Layer in other analysis. Combine S2F insights with technical indicators that show price momentum, fundamental metrics that reveal adoption trends, and sentiment data that captures market psychology. Bitcoin’s valuation emerges from all three layers.

Stay informed on external factors. Regulatory news, technological breakthroughs (like Lightning Network adoption), and macro economic shifts can all override what S2F predicts. You need situational awareness.

Manage risk ruthlessly. Set position sizes appropriate to your risk tolerance. Use stop-losses. Understand that any single model, including S2F, has a failure mode. When it fails, you want to have already positioned for it.

Embrace the long view. The S2F model was never designed for traders. If you’re playing the volatility game, this isn’t your framework. If you’re holding for years and believe in Bitcoin’s eventual adoption, S2F becomes more relevant.

The Verdict: Useful But Not Gospel

The Bitcoin S2F model succeeds at isolating one powerful dynamic—scarcity—and showing its historical correlation with price. It fails because it ignores the complexity of actual markets: demand fluctuations, regulatory environments, technological disruption, and the simple fact that sentiment can overpower fundamentals for extended periods.

For long-term investors who believe Bitcoin’s scarcity will ultimately drive value as adoption expands, S2F provides useful framing. For everyone else, it’s a data point, not a destiny. The future Bitcoin price will be determined by scarcity, yes, but also by adoption curves, competitive dynamics, regulatory clarity, and the macroeconomic context in which all this unfolds.

Use the S2F model. Just don’t let it use you.