Bitcoin stock to flow model live chart
What is Bitcoin
Bitcoin is the first digital object that cannot be copied, duplicated, pirated or forged. Those are the primary attributes that give its unique value. Bitcoin is the first digitally scarce thing known to mankind, and within its inner workings is a Mathematical mechanism that should make Bitcoin's value continue to rise. Each bitcoin is mined from so-called "blocks". A block is a 1MB piece of information that describes all transactions that take place within a period of time. A new block is generated roughly every 10 minutes. The Bitcoin network has been generating blocks, uninterrupted ever since its inception. The first block (genesis block) was generated on the 3rd of January 2009 and the reward for mining it was 50 bitcoins (BTC). Every subsequent block had the same mining reward but on every 210.000 generated blocks there is an event called "halving" which cuts, in half, the reward value distributed to miners from that moment on. In other words from block 210.000 onwards the reward is halved to 25 BTC; from block 420.000 onwards, it's halved to 12,5 BTC; and so on. Since blocks are generated every 10 minutes, "halving events" take place every 35.000 hours: almost exactly every 4 years.
Why are halvings important
Halving events will continue taking place until the reward for miners reaches 0 BTC. Since Bitcoin's value representation has 8 decimal places, after the 33rd halving, the value of the reward will hit precisely 0 BTC. 33 halving events every 4 years adds up to 132 years total. The last Bitcoin to be mined into existence will be mined in the year 2140. It will be the 21 million'th Bitcoin to come into existence, and last, after which point it will be impossible to create anymore. From then on, Bitcoin will become truely 'deflationary', since "printing" / "minting" / "mining" new coins will no longer be possible, and if owners keep on losing their private keys, as they currently are, then the supply would further deflate by that lost-keys ratio.
What is Bitcoin stock to flow
The 'Stock-to-flow' is a number that shows how many years, at the current production rate, are required to achieve the current stock. The higher the number, the higher the price.
How does all this affect bitcoin price
As previously mentioned, it is not possible to copy or forge Bitcoins, and the total supply is strictly limited. All transactions are written in blocks, i.e 'the blockchain', and nobody can spend coins that belong to someone else's bitcoin address. A Bitcoin address is akin to a bank account in which you can make deposits, but without providing access to the all important private keys that are required to spend its contents. That is where "scarcity" comes into play. The dictionary definition of scarcity is when something is difficult to come across in nature or in the lab; very similarly to precious metals. Once something becomes scarce enough, it can be used as a money. Stock to flow is defined as a relationship between production and current stock that is out there.
SF = stock / flow
The stock-to-flow is the number that we get when we divide the total stock by yearly production (flow). It tells us how many years are required, at the current production rate, in order to produce what's in the current stock. For example, gold has production rate of around 3.000 metric tonnes and the current stock in whole world is estimated to be 185.000 metric tonnes. If we put that in previous formula:
185.000 / 3.000 = ~62
At the current production rate, we'd need 62 years to dig out all the gold that's currently in circulation. The higher the number–the greater the scarcity. Now, let's see how this relates to Bitcoin. There are around 18 million bitcoins currently in circulation (september 2019) and 1.800 BTC are generated every day (657.000 per year). So, if we put those numbers in stock to flow formula:
18.000.000 / 657.000 = 27
That means that we need 27 years of current Bitcoin production in order to produce the current stock. This number is much smaller than gold but bitcoin has something that gold does not - the halvings we discussed earlier. At the time of the next halving event, around may 2020, Bitcoins will be produced at a rate of 900 BTC / day and, by that time, there will be around 18.375.000 coins in circulation. The stock to flow will climb to 52, which is much closer to gold. The following halving, in 2024, will raise that number to 113 and remember - gold has stock to flow of "only" 62 and it does not have halving events.. Now contrast Bitcoin's dynamic stock-to-flow with Gold's, who's stock-to-flow of 62 is not likely in increase. As a thought experiment, try to imagine what would happen to the price of gold if were to be halved on fine day?
Earlier this year (2019) there was an article written about Bitcoin stock to flow model (link below) with matematical model used to calculate model price during the time:
Model price (USD) = exp(-1,84) * SF ^ 3,36
If we put current Bitcoin stock to flow value (27) into this formula we get value of 10.750 USD. This is the price which is indicated by the model. But, there is one more component that we include in this calculation. It is estimated that during first year of bitcoin (2009) Satoshi Nakamoto (Bitcoin creator) mined around 1 million Bitcoins and did not move them until today. It can be debated if those coins might be lost or Satoshi is just waiting still to sell them but the fact is that they are not moving at all ever since. That is why we make correction in stock to flow model calculation. We simply decrease stock amount for 1 million BTC so stock to flow value would be:
17.000.000 / 657.000 = 25,8
And with applied model formula we get model price in USD:
exp(-1,84) * SF ^ 3,36 = 8.875 USD
On the chart in this page you can see this formula in action. It is calculating model price from 2010 (because Bitcoin was not traded before that and price information is difficult to obtain) all the way until 2030. On the top of the chart you can select currency (default is USD). See detailed description below.
There are four series on this graph:
- Price end of day
- Colored dots are representing end of day actual price (Y axis right side) in selected currency. Different colors are there to indicate how many days are left until next halving event. You can see color scale presented vertically on the right side of the chart.
- Stock/Flow 1 day
- This is the purple line indicating what is the model price in selected currency. It has already been said that stock to flow is relationship between total stock against yearly production. In this "1 day" line we take production in one day and then multiply it by 365 to get the estimated yearly production and then calculate stock to flow. You might ask yourself why is this line is not more flat. This is because time between blocks is 10 minutes only in ideal cases. Sometimes is less and sometimes more. In ideal situation in one day there should be 144 blocks mined but in reality it is not. Some days have more blocks and some less. This is due to the fact that processing power of all hardware around the world is not stable all the time. New mining hardware is going on and off every minute so blocks cannot be mined at the same rate. For example if more hardware is added to bitcoin mining network then total hashrate of the newtork is higher and blocks are generated faster. Network has mechanisms implemented to deal with this by adjusting difficulty (if you want to know more about this process see links below). This line is much more flat for future days on the chart because we cannot know in the future how many blocks will be generated but we go with the assumption that it will be ideal case of one block per 10 minutes (144 blocks per day).
- Stock/Flow 365 day
- This is blue line and it is much more flat than the "1 day" line because in this case we take 365 days before the observed day on the chart and count how many Bitcoins were generated in total. Then stock to flow value is calculated.
- Diff model price
- Value is represented by red line and is showing model price using difficulty. Formula used to calculate is 0,002 * difficulty ^ 0,51. For difficulty average daily value is used.
There are also 4 cards below the chart:
- Current S/F
- This one is representing most recent calculated stock to flow value. It shows two numbers. First one (1d) is showing value calculated based on one day production multiplied by 365 to estimate yearly production and second one takes actual production in last 365 days and calculates with it. You can see time when it was calculaten on 4th card called "last update".
- Current model price
- Here we calculate model price in selected currency based on most recent data. It shows two values. First one is calculated based on one day production (last 24h) and second one based on production in last 365 days.
- Next halving estimate
- Shows the date next halving event is estimated to take place. This estimation is based on a fact that blocks are generated every 10 minutes in ideal case. As it has been already said in reality this is not happeing exactly every 10 minutes so this date is changing as time passes. Small number in the brackets is showing number of days to go.
- Last update
- Block data is updated every 15 minutes and current price information every hour. After every update all values on the graph are recalculated. Date is in dd.mm.yyyy format and time zone is Central European. If you click on "CET" link in this box you will go to webiste showing current time in this timezone and some other major ones.
Links and credits
Any information found on this page is not to be considered as financial advice. You should do your own research before making any decisions.