ARK Invest and Glassnode have recently published white papers that propose a new framework for analyzing Bitcoin on-chain metrics. This new method, known as Cointime Economics, introduces a novel measure called the coinblock that aims to capture the state of the Bitcoin network.
According to the authors of the white papers, David Puell of ARK Invest and James Check of Glassnode, using Cointime Economics to represent Bitcoin’s economic state instead of the outstanding supply may improve valuation metrics and provide a new analytical tool to measure Bitcoin activity. The authors argue that the importance of a single bitcoin should vary based on the last time it moved. For example, a bitcoin that had been unmoved for 10 years would have more information value upon its transfer compared to one that had been unmoved for only 1 week.
The rationale behind this supposition is that coins held for a prolonged period suggest ownership by the market cohort with the longest time investment horizon and the most profitable cost basis. These coins are likely held by the largest capitalized and historically most savvy market participants in Bitcoin’s history. As a result, when long-dormant Bitcoin is moved, it is considered more significant as it is likely the action of hodlers and whales, rather than actions involving newly mined Bitcoin. Lost Bitcoin is not taken into account in this analysis.
To calculate the coinblock, the basic unit used in this framework, the number of Bitcoin is multiplied by the number of blocks produced while the Bitcoin sits idle. Since the Bitcoin network produces a block every 10 minutes on average, one coin generates approximately 144 coinblocks per day (6 blocks produced per hour multiplied by 24 hours).
Coinblocks are “destroyed” based on the length of time the Bitcoin was held. For example, if two bitcoins had not moved in seven blocks and then transacted, 14 coinblocks would have been destroyed. This destruction of coinblocks indicates higher activity by hodlers, with longer-held Bitcoin resulting in a larger number of coinblocks destroyed. This concept is a variation of coindays destroyed, a metric already employed by Glassnode.
In contrast to the traditional unspent transaction output (UTXO) model, which gives all Bitcoin equal weight, Cointime Economics represents the overall amount of active and inactive Bitcoins differently. In the UTXO model, inactive Bitcoin refers to those that miners have not spent, whereas in Cointime Economics, it refers to the so-called “vaulted supply,” which is the total number of coinblocks created divided by the total number not destroyed (i.e., “stored”).
The white paper also provides three use cases to demonstrate the utility of Cointime Economics, and an advanced version of the paper for blockchain specialists is available from Glassnode, along with a suite of Cointime Economics metrics.
ARK Invest is an investment management company founded by Cathie Wood, known for her focus on disruptive innovation. Glassnode is a market intelligence service based in Switzerland.
In conclusion, the introduction of Cointime Economics and the coinblock measure provides a new framework for analyzing Bitcoin on-chain metrics. This approach takes into account the importance of the last time a bitcoin moved and considers long-held Bitcoin as more significant in terms of market behavior. The use of Cointime Economics may enhance valuation metrics and offer a fresh analytical tool for assessing Bitcoin activity.