CETime: Revolutionary Bitcoin Economic Analysis
Glassnode and Ark researchers have jointly devised a novel framework for dissecting the "economic condition" of the Bitcoin network.
Named "Cointime Economics (CE)," this innovative approach is set to refine the precision of on-chain analysis – a favored technique employed by astute traders and investors to prognosticate Bitcoin's price trajectory.
Cointime Economics in a Nutshell:
According to the lead analyst at Glassnode, James Check, CE deviates from the conventional examination reliant on Bitcoin's unspent transaction outputs (UTXOs), a method that "zooms in on individual transaction outputs and mandates extensive datasets."
In place of this, CE introduces an original unit of temporal measurement dubbed "Coinblocks." These units emerge each time a fresh Bitcoin block is appended to the network, and they dissipate as the associated Bitcoin UTXOs are expended.
In a separate exposition by Ark, Coinblocks are defined as "coin volume times blocks held."
"At a grander scale, the network's composite state is demarcated by Liveliness and Vaultedness, denoting the relative activeness and inactivity of the supply," articulated Check in his blog entry.
The quantification dissects Bitcoin's supply into dual constituents: "Active" and "Vaulted" (inactive) supply. These elements subsequently serve as novel reference benchmarks for computations of an economic nature, encompassing metrics like "inflation rates, vaulting rates, and stock-to-flow ratios."
To elaborate, the conventional calculation of Bitcoin's "inflation rate" traditionally entails "dividing annualized issuance by total outstanding supply," as per ARK's account. However, with the inclusion of CE, the inflation rate is contingent on the ratio of active supply to vaulted supply, thereby multiplying the former inflation assessment by this proportion.
As of May 7, 2023, the apparent Bitcoin inflation rate registered at 1.64%, whereas the inflation rate adjusted by the cointime approach recorded 2.48%.
Applications of Cointime Economics:
CE holds a distinct edge over preceding analysis methodologies by accentuating the economic repercussions of "genuinely active supply," all while mitigating the influence of protracted vaulted supply, which is liable to comprise lost coins.
Check elucidated the manner in which Satoshi's long-forgotten Bitcoin holdings have historically skewed measurements for widely utilized gauges like realized price – an estimate of Bitcoin's mean coin price based on the latest instance of each network coin's transaction.
"The $35B held by Satoshi in profit counterbalances the $35B in losses from top buyers by 2021, thereby yielding an MVRV of 1.0," Check penned. "We are disregarding the impact within the active and economically substantial supply."
Check underscored that CE empowers analysts to factor in vanished coins through "basic mathematical operations," sans any prerequisite to identify the specific lost coins.