Understanding Crypto · Lesson 3 · Beginner
Hard money and stock-to-flow
You can gauge scarcity via stock-to-flow and know why S2F is not a price-prediction model.
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Hard or easy
Hard money: the supply can only be increased with real effort, gold is the example. Easy money: the amount is easily inflated sharply, unreliable as a store of value.
Stock-to-flow measures that: stock divided by annual inflow. Gold's stock historically grows only about 1.5 percent per year, and since 1942 never above 2 percent. A high S2F means hard.
Comparison: scarce vs abundant supply across two coins.
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Test yourself
What does a high stock-to-flow value tell you?
- The asset is scarce, the annual inflow is small against the stock
- The price will rise
Why does copper, despite its value, not work as a store of value?
- It is a consumable with a low S2F
- It is not divisible
Sign up free for the answers with an explanation for each option.
The key points at a glance
- Hard money has inelastic supply, easy money can easily be increased sharply.
- Stock-to-flow is stock divided by annual inflow, high means scarce.
- S2F explains scarcity but is not a robust price model.
Deep dive
Calculating stock-to-flow: what the number measures
Stock-to-flow is existing supply divided by annual new inflow. Gold's supply has historically grown only about 1.5 percent per year and has never exceeded 2 percent since 1942, which is why its price stays stable. Copper, by contrast, is continually consumed, its stock stays small against the flow, its stock-to-flow low.
- High S2F: new inflow is tiny against the stock, hard money
- Low S2F: every price rise quickly lures out more production, easy money
- Price elasticity of supply measures exactly this response of supply
- Gold historically had the lowest supply elasticity of all commodities
Why the S2F price model failed
Stock-to-flow describes scarcity cleanly. The S2F price model it inspired, from PlanB, claims instead to derive a future price from scarcity, and has failed empirically.
- It ignores demand completely
- A good can be scarce and still fall if nobody wants it
- It rests on a handful of halvings, far too few data points
The halving fallacy and BTC's supply schedule
BTC's design keeps the S2F rate low no matter how high demand is. According to Ammous, BTC overtook gold's stock-to-flow around 2022 and sits at roughly double it around 2025, with the last coin around 2140.
None of this implies a guaranteed pump after every halving. The timing is known and has long been priced into expectations. Treat it as a market event with an uncertain outcome, not a guarantee, because scarcity only describes supply.
Sources: Ammous, Goodman, Burniske/Tatar
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