Bitcoin's Stock-to-Flow Pricing Methodology

The stock-to-flow pricing model, commonly used for gold, is applied to bitcoin. The upcoming reduction of new bitcoins coming into circulation (“halving”), expected in May 2020, will put this model to test.

Introduction

Most people in the bitcoin space have come across the stock-to-flow method of pricing bitcoin. It is a pricing model from the commodity space that is commonly used for gold. With the proposition of bitcoin being a store of monetary value, and a similar market structure to gold, the model is naturally suggested as a way of also pricing bitcoin.

In this paper the author takes a look at the stock-to-flow method of pricing bitcoin ahead of the halving - a periodic reduction of the amount of new bitcoins coming into circulation, expected in May 2020. The author recognises that the model appears to have been successful in the past and that it has had significant uptake ahead of the halving event. His critique is an exploration of the ideas proposed to value bitcoin and whether they still apply this time around.