• Just a month after announcing the expansion of its custodial services to include cryptocurrencies, BNY Mellon explores the future valuation of the Bitcoin price.
  • If the stock-to-flow ratio is correct, the Bitcoin price will reach at least $100,000 by the end of 2021.
  • BNY Mellon believes that there are flaws in the S2F ratio and that Bitcoin’s valuation would most likely be more accurate based on a combination of different models.

12 years after the inception of Bitcoin, institutions are now seeing the intrinsic value of the leading cryptocurrency. The world’s largest custodian bank with over $37 trillion in assets under custody has recently evaluated ways of valuing Bitcoin, highlighting the stock-to-flow model.

Stock-to-flow model is worth understanding despite its flaws

BNY Mellon has recently explored different methods of valuing Bitcoin, as the custodian bank announced plans last month to expand its offerings to Bitcoin and other cryptocurrencies. In a March investment report, “Blending Art & Science: Bitcoin Valuations,” BNY Mellon analyzed several potential models for calculating how much the pioneer cryptocurrency could be worth in the future. 

While Bitcoin is frequently compared to gold — another asset that has been used as a store of value to hedge against inflation — the banking giant explored a few valuation methods for the yellow metal before looking at possible valuation models for Bitcoin. 

After suggesting that there are numerous models for deriving the valuation of Bitcoin, BNY Mellon suggested that the stock-to-flow ratio (S2F) is one of the more interesting valuation concepts, despite its flaws. 

The stock-to-flow ratio refers to the total current supply of an asset — the stock — divided by the amount of the asset that can currently be mined in a year — the flow. Using the S2F ratio on commodities like gold gives the precious metal a ratio of over 50, meaning that it would take over 50 years of gold production to reach the current stock of gold. 

Bitcoin currently has an S2F ratio in the 20s, but with the next halving event for the cryptocurrency, the digital asset’s S2F ratio will eventually increase and reach gold’s market capitalization. However, BNY Mellon highlighted one of the model’s biggest flaws, as many critics of the S2F model have emphasized — that supply does not define price. While gold has an S2F ratio near 60, gold’s price fluctuated massively in its history. The report stated:

They argue that the majority of gold’s movement can be explained by the purchasing power of the US dollar, and buying/selling of gold is based on inflation or currency debasement expectations. To all of these points, we agree.

However, if the valuation model for Bitcoin is correct, the digital asset’s price would reach at least $100,000 to $288,000 by the end of 2021. 

Researchers at BNY Mellon concluded that they have not yet decided on just one model for valuing Bitcoin. Still, its valuation would most likely be a combination of several models which constantly evolve as it gains mainstream acceptance. 

Fidelity predicts Bitcoin price at $1 million

The S2F model on Bitcoin was first introduced by crypto analyst PlanB in March 2019, highlighting the digital currency’s scarcity and hence deriving its future value. Citing that the amount of Bitcoin mined and produced continues to decline over time until its total supply of 21 million is produced, the S2F ratio will go up, along with the BTC price. 

PlanB suggested that as Bitcoin went through its third halving in May 2020, mining rewards being cut in half would cause the crypto’s price to rise to $55,000, which was a trend seen in gold and silver prices when the same S2F ratios were hit. 

In August 2020, Fidelity Digital Assets also analyzed the S2F valuation model, exploring the reasons to attract interest in the leading digital currency as an investment. According to the asset manager, Bitcoin is the second most resilient asset after gold.

In its next upward cycle, Bitcoin could reach a price of $1 million by 2025, according to the model. Raoul Pal, CEO of Real Vision, predicts Bitcoin at the same price, and added that the most attractive way for institutions to gain exposure to the leading cryptocurrency would be through Bitcoin exchange-traded funds


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