Stock-to-Flow Ratio
TL;DR
The Stock-to-Flow (S2F) ratio measures how hard it is to increase the supply of an asset. A higher S2F means the asset is harder “money.”
What Is It?
- Stock: The total existing supply of an asset (e.g., all the gold ever mined).
- Flow: The amount of new supply created in a given year (e.g., annual gold production).
- The Ratio: .
Why It Matters
- Gold: Has the highest S2F ratio among physical commodities (approx. 60). This is why it became the world’s primary store of value – it is very hard for a sudden increase in production to dilute the existing holders.
- Fiat: Has a low or unpredictable S2F because the central bank can increase the “flow” (printing) at any time.
- Bitcoin: Currently has a high S2F that doubles every 4 years due to the Halving. Eventually, its S2F will become nearly infinite as flow approaches zero.
Significance
Bitcoin is the first asset in history to have a mathematically fixed supply schedule, making its S2F ratio perfectly predictable and eventually higher than gold’s.