# BTC: S2F PlanB Model

As the name suggests, the ratio of stocks to flow correlates inventory to flow. A fine example is the world gold reserve and the amount of gold mined annually on Earth.

The S2F ratio is quite simple. Just divide the total stock by the annual production volume. In other words, this is simply the amount of years that is required to double the stocks of this element on the basis of its annual production.

Thus, according to the data of the World Gold Council, 187 200 tins of gold have been mined since the beginning of civilization. If you divide these 187 200 tons by the number of tons of gold mined annually (3,000) tons , we get a coefficient of 62. Thus, it will take 62 years to double gold reserves at the current production rate.

In the case of Bitcoin, the current stock is 19 million BTC. Since 6.25 BTC is mined for each block (~328,500 BTC per year), we get a ratio of 58.

It is known that PlanB has created a model related to Bitcoin’s S2F coefficient (which is ultimately only a rough indicator of supply and demand). This model has proved formidable in predicting the evolution of BTC until 2021, but not now.

By the way, gold is really still an order of magnitude more scarce than Bitcoin, but everything will change after the next halving, since the reward received by BTC miners (offer) will be halved.

Thus, the S2F coefficient will double and show that it will take more than 100 years to double the BTC stock. By comparison, we still haven’t reached the peak of gold production…

# The failure of the PlanB model

The chart below shows the fundamentals of Bitcoin. You can see the blue supply curve expressed by Plan B’s S2F model and the purple demand curve determined by network growth (Metcalf’s law):

Metcalf is an American engineer and Internet pioneer who gave his name to his famous law of the same name, which states that “the utility of a telecommunications network is proportional to the square of the number of users.”

Now the quadratic function (x2) is a function that increases very quickly…

In short, Jurrien Timmer, who shared this chart, notes that until recently Bitcoin often surpassed its intrinsic value (S2F) during bull markets, and fell short of it during bear markets.

Fidelity strategist believes that those days are over, and that Bitcoin has moved from correlation with the S2F model, to following the Metcalf model (pink curve). In other words, the price of Bitcoin is more influenced by demand than supply.

“Although the S2F model has been an effective model in the past, I believe the demand curve will be the dominant driver from now on,” he wrote.

Timmer believes that institutional investors are probably already using the demand model to determine whether the BTC is being sold or not. The entry point is very important:

“For example, if the demand-based model (Metcalf’s law) says that the intrinsic value of Bitcoin is \$50,000 today, and \$100,000 in two years, then BTC will be much more attractive at \$30,000 than at 70,000. This is the difference between ~3x gain and ~1.5times. Of course, 1.5x is already excellent performance. But with a volatility of 50, the Sharpe coefficient will be only 0.5, that is, a poor risk profile. The entry point is important for all assets, including Bitcoin.”

Overall, Fidelity claims that Bitcoin is increasingly becoming a traditional asset with less extreme volatility. Soon there will be “more savings when Bitcoin falls, and more determined sales when it takes off”.

This foreshadows the arrival of institutional investors, for whom double-digit volatility is unbearable. At the same time, inflation is also expressed in double digits…

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