Bitcoin Price Models Face Scrutiny as Stock-to-Flow Shorts Against Demand-Driven Market
Introduction: The Evolving Landscape of Bitcoin Valuation
Bitcoin's price forecasting landscape is undergoing a fundamental reassessment as traditional valuation models struggle to keep pace with the cryptocurrency's maturation into mainstream finance. The once-dominant Stock-to-Flow (S2F) model, which projects BTC reaching $222,000 by 2026, now faces significant skepticism from analysts who argue its scarcity-based approach fails to capture today's demand-driven market realities. André Dragosch, Head of Research for Europe at investment firm Bitwise, has emerged as a prominent voice questioning these established frameworks, noting that institutional demand via Bitcoin ETPs and treasury holdings now outweighs the annualized supply reduction from the latest halving by more than seven times. As competing models like BAERM and the Power Law offer alternative perspectives with varying degrees of conservatism, the crypto community confronts a crucial question: have Bitcoin's valuation frameworks kept pace with its evolution from niche digital asset to institutional investment vehicle?
The Stock-to-Flow Model: Scarcity-Based Forecasting Under Pressure
Created by pseudonymous analyst PlanB in 2019, the Stock-to-Flow model measures Bitcoin's value based primarily on scarcity metrics. The model compares Bitcoin's existing supply (stock) to its annual new supply (flow), operating on the premise that higher ratios correspond to increased scarcity and therefore higher valuations. This framework directly links Bitcoin's price appreciation to its quadrennial halving events, which systematically reduce new coin issuance.
The current S2F projection remains exceptionally bullish, forecasting Bitcoin could reach $222,000 by 2026. Over a longer ten-year horizon, the model suggests a staggering valuation of $10.9 million per BTC, representing an annualized compound growth rate of approximately 58.3%. However, Dragosch cautions investors against relying too heavily on these projections, stating: "The S2F model is undeniably one of the more bullish frameworks – but use it with caution. Its statistical issues and exclusion of demand-side drivers limit its reliability."
The analyst highlights fundamental criticisms of the model's structure, noting that economist Kripfganz argued in 2020 that the model is "misspecified" because Bitcoin's halvings make the S2F ratio time-dependent rather than stochastic. "Beyond theory, Bitcoin has consistently underperformed the S2F-implied price," Dragosch added. "Residuals show a negative drift and are non-stationary, suggesting omitted variables and statistical flaws."
Institutional Demand Versus Halving Mechanics: A Market Transformed
The core challenge facing traditional Bitcoin valuation models lies in the fundamental shift in market structure that has occurred since early 2024. According to Dragosch's analysis, institutional demand through Bitcoin ETPs and corporate treasury holdings now dramatically overshadows the supply impact of halving events. The data indicates that institutional buying pressure exceeds the annualized supply reduction from the latest halving by more than seven times, creating a market dynamic that scarcity-based models like S2F weren't designed to capture.
This represents a significant departure from previous market cycles where halving-induced supply shocks played a more dominant role in price discovery. The emergence of spot Bitcoin ETFs in the United States and growing corporate adoption have introduced sustained demand pressures that operate independently of Bitcoin's programmed issuance schedule. This evolution in market structure suggests that past post-halving performance patterns may no longer reliably predict future price action.
Dragosch emphasizes this transformation: "Today, institutional demand (via Bitcoin ETPs and treasury holdings) outweighs the annualised supply reduction from the latest Halving by more than 7x." This statement underscores how the fundamental drivers of Bitcoin's value proposition have expanded beyond mere scarcity to include its role as a institutional-grade asset with persistent demand streams.
Alternative Frameworks: BAERM and Power Law Offer Contrasting Perspectives
Beyond S2F, analysts are examining other established valuation models that offer different methodological approaches and projections. The Halving Supply Shock Model, also known as the 'Bitcoin Autocorrelated Exchange Rate Model' (BAERM), measures how each Bitcoin halving affects price over time using historical price data while accounting for the declining impact of supply shocks.
BAERM currently estimates Bitcoin's fair value at $159,000, projecting $173,000 by the end of 2025 and $7.59 million over ten years. Historically, this model has demonstrated strong predictive accuracy with approximately 88% R² since the second halving. However, Dragosch notes that BAERM may now be "somewhat outdated" since it doesn't fully account for institutional buying influence or evolving adoption trends.
"For those who still believe in the high importance of Halvings – this model is for you," Dragosch remarked, while acknowledging its limitations in capturing current market dynamics.
The Power Law model presents another alternative, tying Bitcoin's price to a time-based formula that has demonstrated remarkable statistical fit with 99% R² in log-log regressions. However, this framework takes a notably more conservative approach than either S2F or BAERM. Its ten-year Bitcoin price prediction sits at $2.03 million, substantially lower than competing models, based on the premise that returns will continue declining as Bitcoin matures.
Adoption Curves and Market Evolution: Challenging Diminishing Returns Assumptions
The fundamental assumptions underlying many Bitcoin valuation models face challenges from observed patterns in technological adoption. Dragosch points out that "technological adoption curves tend to follow an S-curve pattern of demand with re-accelerating demand during the transition from 'early adopters' to the 'early majority.'" This pattern directly challenges the diminishing returns hypothesis embedded in models like the Power Law.
This transition between adoption phases could potentially reignite accelerated growth periods that conservative models might underestimate. The massive structural shift in Bitcoin ownership patterns since January 2024, driven by ETF approvals and institutional participation, represents precisely the kind of market evolution that could trigger such a transition.
As Dragosch notes: "The market structure has essentially changed since January 2024 with the rise of ETFs and institutional buyers. Past post-Halving performance patterns might not apply anymore." This observation suggests that historical data alone may provide limited guidance for forecasting Bitcoin's trajectory in this new institutional era.
Comparative Analysis: Valuation Models in Context
When evaluating S2F, BAERM, and Power Law models collectively, several patterns emerge regarding their methodologies and limitations. All three models share a long-term bullish outlook on Bitcoin but diverge significantly in their medium to long-term projections and underlying assumptions.
The S2F model remains the most aggressive in its forecasts but faces the strongest criticism regarding statistical robustness and its exclusion of demand variables. BAERM offers a middle ground with strong historical accuracy but potential relevance gaps in today's institutionally-driven market. The Power Law provides the most conservative projections with excellent statistical fit but may underestimate potential adoption accelerations.
What becomes clear across all frameworks is their collective struggle to fully incorporate the impact of structural market changes occurring since early 2024. The unprecedented scale of institutional participation through regulated vehicles represents a qualitative shift that existing quantitative models weren't designed to capture.
Conclusion: Navigating Bitcoin Valuation in a New Market Paradigm
The ongoing scrutiny of Bitcoin price models reflects the cryptocurrency's continued maturation as an asset class. While established frameworks like Stock-to-Flow, BAERM, and Power Law provide valuable historical context and methodological starting points for valuation, their limitations in capturing today's demand-driven market dynamics are increasingly apparent.
The critical insight for investors and analysts lies in recognizing that Bitcoin's value proposition has expanded beyond simple scarcity metrics to include its role as a legitimate institutional asset with persistent demand streams independent of halving cycles. As Dragosch's analysis demonstrates, institutional demand currently overwhelms supply reduction effects by a factor of seven, suggesting that demand-side variables may now dominate price discovery.
Moving forward, market participants should monitor several key developments: the sustainability of institutional inflows through ETFs and treasury allocations, potential updates to existing models incorporating demand variables, and emerging valuation frameworks specifically designed for this new market structure. Rather than relying exclusively on any single model, a multifaceted approach that considers both traditional scarcity metrics and evolving demand fundamentals may provide the most robust analytical framework.
The coming market cycle will serve as a crucial testing ground for whether established valuation models can adapt to these new realities or whether entirely new paradigms will emerge to better capture Bitcoin's complex position at the intersection of technology, monetary innovation, and institutional finance. What remains certain is that Bitcoin's journey toward maturity continues to challenge conventional analytical approaches while opening new frontiers in digital asset valuation methodology.