Bitcoin’s Price Predictions in Question
The Stock-to-Flow (S2F) Model: A Bullish Relic?
The Stock-to-Flow (S2F) model, popularised in 2019, measures Bitcoin’s value based on its scarcity. It compares the existing supply (“stock”) to the annual new supply (“flow”). The higher the ratio, the scarcer, and theoretically, the more valuable Bitcoin becomes. Originally, the S2F model predicted that Bitcoin could reach $222,000 by 2026 and an eye-watering $10.9 million over ten years, representing an annualised compound growth rate (CAGR) of roughly 58.3%. However, in 2025, this forecast is now being heavily scrutinised.
André Dragosch, Head of Research for Europe at Bitwise, cautions against relying too heavily on the S2F model. In a recent analysis, Dragosch suggested that the S2F model may no longer fully reflect the current dynamics of the Bitcoin market. He highlights the model’s “statistical issues and exclusion of demand-side drivers” as key limitations. Further critiques indicate that Bitcoin has consistently underperformed the S2F-implied price, suggesting the model omits crucial variables and contains statistical flaws.
The Changing Macro Environment
Dragosch stresses that Bitcoin’s macroeconomic environment has significantly evolved since the model’s inception. Institutional demand, fuelled by Bitcoin ETPs (Exchange Traded Products) and treasury holdings, now dwarfs the annualised supply reduction resulting from the latest halving by more than sevenfold. This indicates a fundamental shift in market structure, rendering the S2F model’s scarcity-based predictions potentially obsolete.
Alternative Models: BAERM and Power Law
Beyond the S2F model, other valuation frameworks, such as the Bitcoin Autocorrelated Exchange Rate Model (BAERM) and the Power Law model, offer alternative perspectives. These also need to be re-evaluated for a 2025 context.
BAERM: Halving Supply Shock Model
BAERM, also known as the Halving Supply Shock Model, measures how each Bitcoin halving affects price over time using historical price data. It also takes into account the declining impact of supply shocks. This model currently estimates Bitcoin’s “fair value” at $159,000, projecting $173,000 by the end of 2025, and $7.59 million over ten years. While BAERM has historically demonstrated a strong predictive fit, with an approximately 88% R² since the second halving, it may now be “somewhat outdated.” It doesn’t fully account for the impact of institutional buying or evolving adoption trends.
BAERM doesn’t incorporate the potential re-acceleration in returns via an S-curve adoption pattern. However, for those who still attribute significant importance to halvings, this model remains a valuable consideration.
Power Law: Diminishing Returns?
The Power Law model ties Bitcoin’s price to a time-based formula. It boasts an impressive 99% R² in log-log regressions. However, it is notably conservative. Its 10-year Bitcoin price prediction sits at $2.03 million. This is considerably lower than both S2F and BAERM, based on the premise that returns will continue to decline as Bitcoin matures. The ongoing shift in market structure suggests that even cautious forecasts may need to reflect new, demand-driven growth opportunities.
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 dynamic severely challenges the diminishing returns hypothesis of the Power Law. Moreover, the rise of ETFs and institutional buyers since January 2024 has fundamentally altered the market structure. This could mean that past post-halving performance patterns may no longer be relevant.
A New Paradigm for Bitcoin Valuation?
The central question for Bitcoin investors in 2025 is whether classic models, like Stock-to-Flow, BAERM, and the Power Law, can still accurately predict Bitcoin’s trajectory. These models still offer valuable perspectives on Bitcoin’s long-term potential, but they increasingly struggle to capture today’s demand-driven market dynamics. The next market cycle will undoubtedly reveal whether these frameworks can adapt and evolve. Or, whether they will give way to a new paradigm for assessing Bitcoin’s value.
Ultimately, investors must adopt a more nuanced approach, considering the combined impact of scarcity, institutional adoption, technological advancements, and macroeconomic conditions. A purely model-driven strategy, especially one based on outdated assumptions, could lead to significant miscalculations in this rapidly changing market.
