Stock to Flow Ratio
Stock to Flow (SF) Ratio is defined as a ratio of currently circulating coins divided by newly supplied coins
Stock to Flow (SF) Ratio is defined as a ratio of currently circulating coins divided by newly supplied coins.
SF ratio assumes that the scarcity of the coin drives the price of the coin. The analysis on SF ratio is first presented by a pseudonymous Dutch institutional investor who operates under the Twitter account “PlanB”. By looking at SF ratio as a chart, we can spot where the market regime is.
-If Newly supplied coins decrease, SF Ratio rises.
-If circulating coins rises, SF Ratio rises.
The original authors claim that the log of SF ratio is in a linear relationship with the log of the price. We reproduce the results of what they claim and as a result, shown in the figure below, SF ratio and price are in a linear relationship (not perfectly but in some sense) with significant statistics (p-value under 0.01, R-square over 90%).
Following the above linear statistics (trend and intercept), we can plot how closely they are related in a time-series manner. With this graph, we can recognize that the current price is in what regime recently.