At a time when Bitcoin’s price is suffering – down 50% since the all-time high over $124K in October 2025 – there’s never been a better time to step back and consider some of the fundamentals of Bitcoin price movements.

Put another way, which factors actually drive Bitcoin’s price? Figure that part out, and we can begin to see not just why Bitcoin is down now, but why (and when) it might go back up again.

Fundamental Bitcoin price models

There are generally two or three broad models for Bitcoin’s price:

Stock-to-Flow (S2F), a scarcity model

S2F measures an asset’s existing supply (stock) against the amount of new supply produced each year (flow): S2F = stock / flow. A higher ratio means the asset is harder to inflate, because new production is small relative to the total existing supply.

In Bitcoin, the idea is that halvings reduce new issuance, raise Bitcoin’s stock-to-flow ratio, and therefore increase its monetary ‘hardness,’ pushing value higher. PlanB initially formulated the S2F model back in 2019, arguing from core project design as laid out in the original Bitcoin whitepaper. Nakamoto’s whitepaper doesn’t identify S2F specifically, but PlanB theorized that S2F applies to Bitcoin based on the structure (notably, the supply mechanics) outlined by Nakamoto.

Importantly, critics and industry analysts have identified a couple of key limitations with the S2F model. The most critical is that S2F deals almost exclusively with supply-side dynamics; you won’t find any accounting within the model for Bitcoin demand, or any of the factors that impact that demand; that includes regulations, institutional markets, etc.

For those reasons, the S2F model is best viewed as a long-term description of core Bitcoin mechanics, not a valid predictor of future performance.

Metcalfe’s Law, a network-value model

Back in 2018, Timothy Peterson applied a computer science principle known as ‘Metcalfe’s Law’ to the growing Bitcoin network, reasoning that for a digital currency like BTC, financial principles were less applicable.

Metcalfe’s law says that the value of a network rises with the number of possible connections among its users. In the standard form, if a network has n users, its value is proportional to roughly n² or, more precisely in pairwise terms, n(n−1).

Applied to Bitcoin, the model treats Bitcoin less like a commodity and more like a monetary or even computer network: as more users, wallets, counterparties, and participants join, the network’s value can grow nonlinearly. Peterson’s paper explicitly argues that Bitcoin’s price is best modeled as a network in the medium to long term, while not claiming this explains every short-term move.

Power Law, a scaling model

A power law describes a relationship where one variable changes as another variable raised to some exponent. In the Bitcoin valuation context, it usually means that Bitcoin’s value or price appears to follow a long-run scaling relationship when plotted on log-log axes.

PlanB’s original S2F article noted power law correlations with the underlying S2F model, tying the two together; power law is less of a separate causal theory by itself, and more the mathematical form of the relationship being observed.

A key proponent of the Power Law scaling model goes by ‘Giovanni’s BTC_POWER_LAW’ on X; he regularly provides detailed analysis demonstrating power law actions in Bitcoin price activity.

Why Bitcoin’s price requires both models

Bitcoin’s price is best understood through both scarcity and network growth, not either one in isolation, with the power law often viewed as the mathematical expression of these combined dynamics.

Here’s a simple illustration of the underlying principles.

Stock-to-flow and scarcity: The most obvious Bitcoin price model

Bitcoin is structurally scarce because its issuance is fixed by code and reduced through regular, preordained halving cycles. Nearly everyone understands this instinctively; even crypto neophytes quickly grasp the significance of ‘only 21M Bitcoin, ever!’

Scarcity as a value model becomes even more apparent when key companies make it a core part of the market strategy. For example, Michael Saylor’s Strategy holds roughly 761,000 BTC, representing close to 4% of Bitcoin’s circulating supply, underscoring how scarcity has become central to institutional accumulation strategies.

With scarcity as the underlying principle, the rest of the S2F model kicks in. In some ways, Bitcoin will always remain scarce. And while it is true that Bitcoin mining continues to be a thing, the fundamental design of Bitcoin underscores that there will be a sudden glut of Bitcoin mining, a sort of gold rush that floods the market. The original Bitcoin whitepaper describes a network secured by participants, miners, and nodes, which means Bitcoin is not just a scarce object sitting in a vault; it is a living monetary network.

Bitcoin’s monetary policy is one of its most distinctive features: the circulating supply rises on a known schedule, and the flow of new coins is periodically cut in half. This creates what many analysts call monetary ‘hardness,’ the idea that the asset is difficult to inflate.

Analysis from Fidelity’s valuation work back in 2022 makes this point directly, noting that Bitcoin’s supply is predetermined, increasingly scarce, and inelastic to changes in demand. That inelasticity is important because when demand rises, supply does not expand to soften the move; the adjustment happens largely through price.

This is why the Stock-to-Flow model became so influential. In its simplest form, Stock-to-Flow compares the existing stock of an asset to the annual flow of new issuance. Gold has historically had a high stock-to-flow ratio because the existing stockpile is large relative to new annual supply, and PlanB argued that Bitcoin could be valued using the same logic.

In his original model, he treated Bitcoin as the first truly scarce digital object (something highlighted by Satoshi Nakamoto) and argued that rising stock-to-flow after each halving should correspond with higher market value. That framing resonated because it turned Bitcoin’s 21 million cap and halving schedule into an identifiable valuation narrative.

There’s a genuine insight here; Bitcoin’s supply policy is not a mere marketing ploy. Instead, it’s a valuation engine embedded in the protocol. If an asset’s supply cannot quickly expand when new demand arrives, then demand shocks are more likely to appear as price shocks. That is part of why Bitcoin’s moves can be violent in both directions. Fidelity’s research and recent institutional reports keep returning to this core idea: Bitcoin’s supply is structurally constrained, and that makes it behave differently from assets whose production can ramp up more flexibly.

But S2F also runs into a hard limit: scarcity alone does not create value. Plenty of things are scarce without being important. A supply schedule can explain why Bitcoin is hard to inflate, but it cannot by itself explain why millions of people, public companies, ETF investors, traders, miners, custodians, and sovereign or quasi-sovereign actors would coordinate around it. This is one reason most analysts do not necessarily use the model on a standalone basis for forward price expectations, instead preferring a broader supply-and-demand framework.

Network value: Why Metcalfe’s Law adds insight over time

Metcalfe’s Law holds that the value of a network rises with the number of possible connections among users. Applied loosely to Bitcoin, the idea is simple: a network with more participants, more liquidity, more counterparties, more infrastructure, and more trust can support more value than a smaller network. Timothy Peterson’s paper on Metcalfe’s Law and Bitcoin explicitly argues that Bitcoin can be modeled as a digital token currency network and concludes that Metcalfe value helps explain bitcoin’s price formation.

In other words, Bitcoin is valuable not just because it is scarce, but because it is both scarce and fundamental to a growing network that people increasingly treat as money.

When more users hold Bitcoin, more exchanges list it, more custodians support it, more miners secure it, more institutional products wrap it, and more companies or funds allocate to it, the asset becomes easier to own, easier to trade, easier to trust, and more socially legible.

Those reinforcing loops are exactly what network-effect models are meant to describe. Back in 2020, analysis from key industry players like NYDIG leaned into the model by explicitly tying Bitcoin’s case to network adoption, daily active addresses, usage, and longer holding periods.

Anecdotally, the Bitcoin crash of 2021-2022 seemed to only reinforce talk of the importance of network effects. I was part of a crypto startup at the time, working on marketing with a decentralized lending platform (back when that seemed like a viable product). Nearly every meeting came back to talk of how to boost the protocol to the point where true network effects would finally kick in, and the next step would be total market domination! Of course, the sad reality was (and remains) that network effects alone aren’t enough to achieve market success; that startup, like so many crypto projects before, wrapped up a while later.

We’ll return to some of the weaknesses of Metcalfe’s law shortly; for now, it’s sufficient to point out that network effects do help to explain why some projects and currencies survive when so many others fail. Bitcoin’s demand base can grow even while available supply becomes tighter, and the combination strengthens the case more than either factor alone.

Once you see Bitcoin this way, the old ‘scarcity or network growth?’ question starts to look too narrow. Scarcity explains why Bitcoin can function as hard money; network growth explains why more people may be willing to assign hard-money status to it. A scarce digital token with no users would stay irrelevant. A fast-growing digital network with no credible monetary policy might attract activity but fail to develop a durable monetary premium. Bitcoin’s distinctiveness comes from pairing a rigid supply curve with expanding global demand.

Power Law: A key component

Before we come to an analysis of the ‘scarcity vs network growth’ debate today, there’s one other factor to include.

Bitcoin is bearing down rapidly on a full two decades of existence. With a growing body of historical price performance to analyze, some industry experts have started pointing to a different indicator, one working alongside and underneath the traditional scarcity or network effect discussions.

Among some analysts and researchers, Bitcoin’s long-run price path is often described as following a power-law relationship when plotted on log-log scales. The argument is that Bitcoin behaves less like a conventional asset and more like a complex system with scale-invariant properties.

Power Law proponents continue to make their case on X and other platforms, with growing confidence.

Used carefully, Power Law can be understood as a bridge rather than a rival to the other models. If Bitcoin combines hard supply constraints, rising network adoption, growing security expenditure, institutional market access, and reflexive social legitimacy, then it is plausible that the resulting system would produce a recognizable long-run scaling pattern. In that reading, the power law aspect describes the broader path that may emerge when scarcity and network growth compound together.

But that’s an important point; Power Law is best as a descriptor of market forces, not as a predictive model. Analysis from Forbes makes this clear:

The power law is a statistical model that establishes a fit between external measures of bitcoin (price, time, addresses, etc.). It does not provide the underlying economic forces that drive those measures.

 

Incorporate Power Law observations into a broader framework when analyzing the Bitcoin market; don’t take them in isolation.

Analyzing S2F and Metcalfe today: What recent market movements say about Bitcoin’s price potential

So what? The crypto market spent virtually all of February 2026 in ‘Extreme Fear’ on the crypto Fear & Greed index; what do any of the price models say about that?

Bitcoin price is, unfortunately, driven by real-world conditions, not just models, and those real-world conditions have combined to put extreme pressure on Bitcoin’s price:

• Bitcoin Open Interest has lagged significantly below the market price since shortly after last October’s all-time-high.
• Bitcoin ETFs saw over $400M in outflows in the last week of trading
• Bitcoin network fees have remained at or near $1.00 average since the ATH, another indicator of reduced demand.

 

In short, no amount of scarcity can beat global political uncertainty and fuel shortages, not to mention general market turmoil. Still, a good grasp of the fundamental models can lead to at least three conclusions:

1. Scarcity provides the base layer on which Bitcoin’s price is built. On a related note, that scarcity is tied to Bitcoin’s proof-of-work model, one largely abandoned by other cryptocurrencies, but which provides the framework for Bitcoin’s regular halving events. The S2F model carries real weight here, and should shape any future strategies.
2. Network effects only go so far. An interesting supporting piece of evidence comes from on-chain data; notice how the average active addresses on the Bitcoin network have steadily dropped since early 2025 (and discounting the latter half of 2024, since late 2023), even while Bitcoin’s price climbed to an all-time high at the end of last year. Network effects aren’t reliant solely on quantity; the quality of those networks matter, though that’s harder to measure. With ETFs, crypto strategic reserves, and even native DeFi protocols, Bitcoin’s network has never been more diverse, and that seems unlikely to change.
3. Despite price fluctuations, the underlying principles, and the models, haven’t changed. Those Bitcoin ETFs are still garnering significant institutional investment; Bitcoin reserves are still a viable market strategy for everyone from El Salvador to Strategy.

 

 

 

No single model should dominate serious analysis. Stock-to-Flow misses too much demand-side reality when used alone. Metcalfe misses macro and reflexive market structure when used alone. Power Law exists best to demonstrate past performance and log-log trends, not as a pure predictive model.

And back in the real world, Bitcoin’s actual market price is also shaped by liquidity conditions, leverage, ETF flows, regulation, treasury behavior, speculative manias, sharp corrections, geopolitical events, and all the human factors of the market. That’s not to mention the potential Bitcoin-specific factors, such as a potential four-year cycle.

Use Stock-to-Flow to explain why Bitcoin is scarce and why that matters; understand how Metcalfe’s Law explains why a growing network may assign increasing value to that scarcity. That’s a stronger, more defensible conclusion than saying Bitcoin is driven by scarcity alone or by network growth alone.

In the end, Bitcoin is a scarce monetary network. Its supply cannot easily expand, which gives it hardness. Its user base, infrastructure, and financial integration can expand, which gives it scale. Until either one of those factors shows signs of dramatic change, expect Bitcoin’s ‘floor’ value to increase over time, even as market factors cause dramatic fluctuations.

 

 

That’s an analytical model that complies with past performance, while still remaining useful for Bitcoin price analysis going forward.