The Stock to Flow Model is a theory about how the price of Bitcoin will increase as supply decreases and demand increases. It is based on supply and demand principles, which are common in economics. When the demand for a commodity increases, producers respond by making more of it. For example, if corn is in high demand, farmers will plant more of it. Similarly, if there is a high demand for bitcoin, more people will be able to obtain it. As supply rises, price goes down.
The stock-to-flow model helps determine the normalized fair price of Bitcoin. If the price of a cryptocurrency drops below this line, it is likely to be oversold and represents a potential buying opportunity for strategic investors.
