Stock to Flow Deflection is used to determine whether an asset is overvalued or undervalued in terms of its Stock to Flow Ratio.
The Stock to Flow (S/F) Deflection is the ratio between the current price of an asset and its Stock to Flow Ratio. It is used to determine whether an asset is overvalued or undervalued in relation to its scarcity.
If deflection is ≥ 1 it means that the asset is overvalued according to the S/F model. If deflection is <1, the asset is undervalued according to this model.
The Stock to Flow Deflection of an asset represents the ratio between the price of the asset and its Stock to Flow Ratio (itself defined as the ratio of the current stock of the asset and the flow of new production).