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Cointime Econ: Revitalizing Bitcoin Analysis

Martin Walker
Aug 25, 2023 at 11:33 am

ARK Invest and Glassnode have recently unveiled an intriguing set of documents delving into a groundbreaking framework for the in-depth analysis of Bitcoin's on-chain metrics. This novel methodology, dubbed Cointime Economics, introduces a captivating concept known as the "coinblock." In the midst of these developments, Bitcoin's trading indicators appear to be experiencing a gentle dip, with the current valuation hovering around $26,039.

The emergence of Cointime Economics heralds a departure from the traditional method of evaluating Bitcoin's economic health based on its outstanding supply. This avant-garde system has the potential to not only revolutionize valuation metrics but also to provide an entirely new lens through which to gauge the dynamic activity of Bitcoin. Noteworthy industry figures, such as David Puell from ARK Invest and James Check from Glassnode, are lending their insights to this paradigm shift:

"The assessment of an individual bitcoin's worth is dynamically influenced by its most recent transaction. For instance, the informational weight of a bitcoin that has been inactive for a decade would outweigh that of a bitcoin dormant for merely a week."

This hypothesis finds its bedrock in an intriguing footnote:

"Bitcoins held dormant over extensive periods imply possession by investors with a more extended investment horizon and a more advantageous cost structure. As a result, they mirror the market behavior of historically shrewd and well-capitalized participants throughout Bitcoin's evolutionary journey."

Evidently, when long-untouched Bitcoin reservoirs are eventually mobilized, the involvement of resolute holders and key market players lends these transactions an air of significance that surpasses those involving freshly mined Bitcoin. It is of note, however, that this framework conveniently sidesteps the treatment of lost Bitcoin.

Central to this pioneering system is the concept of the coinblock, a fundamental unit of measurement. Its calculation involves the multiplication of the total number of Bitcoins by the count of blocks (the foundational units of mining) produced during the period of Bitcoin's dormancy. Elaborating on this, the authors expound:

"As the Bitcoin network consistently generates a new block roughly every 10 minutes, this translates to approximately 144 coinblocks daily: the result of 6 blocks produced every hour, multiplied by the 24 hours within a day."

The lifespan of a coinblock is intricately tied to the length of time a Bitcoin remains in hibernation. For instance, if two Bitcoins remain inactive for the span of seven blocks before springing back to life through a transaction, this sequence would lead to the annihilation of 14 coinblocks. Evidently, elongated periods of inactivity translate to the obliteration of a larger number of coinblocks, shedding light on heightened involvement from steadfast holders. This is, in essence, a creative take on Glassnode's existing coindays destroyed metric.

Every coinblock within the realm of Bitcoin. Reference: Managed by ARK InvestEvery coinblock within the realm of Bitcoin. Reference: Managed by ARK Invest 

By way of contrast, the conventional unspent transaction output (UTXO) model, a lynchpin in numerous settlement systems, bestows uniform weight to all Bitcoins. This fundamental disparity gives rise to divergent representations of active and inactive Bitcoins when viewed through the lens of the two distinct models, consequently shaping differing market perspectives.

Under the UTXO model, inactive Bitcoins are identified as those that miners have yet to utilize. Conversely, within the framework of Cointime Economics, these hibernating holdings are referred to as the "vaulted supply." This figure is derived from the division of the total number of coinblocks generated by the tally of non-destroyed coinblocks (referred to as "stored").

The white paper expounds on three practical scenarios that eloquently showcase the pragmatic utility of Cointime Economics. For blockchain aficionados, Glassnode also presents an advanced iteration of the paper, accompanied by a suite of meticulously crafted Cointime Economics metrics.

ARK Invest, spearheaded by the visionary Cathie Wood, assumes the mantle of an investment management juggernaut. On a parallel trajectory, Glassnode operates as an astute market intelligence service, nestled in the picturesque Swiss landscape.

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