![]() ![]() Gold has the highest Stock-to-Flow ratio when compared to all the precious metals. In the case of gold, although there are 190,000 tons available, the S2F ratio suggests that it is valuable because its annual production is relatively and constant when compared to the existing stock.įull detailed explanation of Stock to Flow Model here Stock-to-Flow ratio of Gold Otherwise, the production may keep up the demand.Īlso, scarcity is not the only factor that means a resource should be valuable. If there is a prediction that there may be a shortage in the future, then the price may rise. As they do not have high value, they tend to work poorly as investment assets. It is because their value comes down due to being destroyed or consumed. Ultimately, an asset with a higher S2F ratio will retain its value for the long-term.Ĭonsumable goods and industrial commodities have a low stock-to-flow ratio. If the S2F ratio is higher, a less amount of new supply enters the market relative to the total supply. ![]() The ratio depicts how much supply enters the market each year for a given resource relative to the total supply. The S2F ratio can be obtained using these two metrics. Also, there are about 2,500-3,000 tons of gold mined every year. The World Gold Council depicts that around 190,000 tons of gold is been mined. To understand the model easily, let’s consider an example of gold. The ratio of the Stock-to-Flow model is calculated as the amount of a resource held in reserves divided by the amount it is produced annually. The S2F model is a way to measure the richness of a particular resource. Now, let’s understand more about the Stock to Flow model. It is where one can begin to see the relationship between Bitcoin’s supply-side mechanics and its market price.Īn independent researcher and investor PlanB implemented a way to create a stock-to-flow model. The price of Bitcoin fork has never overtaken the price of the original Bitcoin. These components are unalterable unless users decide to hard fork the protocol and create a new cryptocurrency. The total supply of Bitcoin is 21 million coins and the circulating supply is 18,489,068 BTC (at the time of writing). Bitcoin is another valuable resource similar to gold, antiques, and fine alcohols as it is very hard to create the work needed to produce it. It is because they’re hard to find in nature and costly to forge and reproduce. When your money is durable, portable, divisible, fungible, easily-verifiable, and widely-accepted as a medium of exchange, then it can be considered as sound money.Ĭoncerning the sound money, people have started investing in gold, silver, or other precious metals. If you’re investing in a digital asset, you have to be sure that the amount invested is sound money. The scarcity of this digital asset is the primary essence behind the stock-to-flow S2F model. To solve this problem, Satoshi Nakamoto designed a scarce digital asset called Bitcoin. These days, the digitally-native products and items are not that valuable as it can be reproduced at little or no cost. ![]()
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