Investment firm Ark Invest and blockchain security company Glassnode have jointly introduced a novel conceptual framework designed to enhance understanding of the Bitcoin (BTC) economy, particularly pertinent during the ongoing bear market. The whitepaper, titled “Cointime Economics: A New Framework For Bitcoin On-chain Analysis,” was unveiled on Thursday. Co-authored by David Puell, a research associate at ARK Invest, and James Check, the lead analyst at Glassnode, the paper presents a comprehensive toolkit to interpret Bitcoin’s economic dynamics in a fresh light.
The primary focus of the whitepaper is to differentiate between the traditional Unspent Transaction Output (UTXO) model and a new concept called “cointime,” which assesses the “true economic significance of a Bitcoin.” The cointime economics approach evaluates a Bitcoin’s importance based on the last time it was actively moved. It introduces the notion of a “coinblock,” a concept that multiplies the number of Bitcoin by the number of blocks generated while the Bitcoin remains dormant. As an example, if 10 coins are held during the creation of 10 blocks, this equates to 100 coinblocks.
The whitepaper posits that significant coinblock reduction signifies that long-term holders are divesting their Bitcoin holdings. These seasoned “smart money” investors generally possess substantial Bitcoin balances, execute transactions from lower cost bases, and accrue higher profits. Additionally, the document introduces two novel metrics for gauging Bitcoin’s economic condition, namely “liveliness,” which measures network activity by assessing how frequently coins are moved or extinguished, and “vaultedness,” which quantifies the number of coins held idle, reflecting the protocol’s inactivity. The authors contend that the cointime framework offers a consistent and mathematical approach to determining the economic relevance of each Bitcoin over time. They explain that, unlike the UTXO framework, which considers a coin as “moved” when it departs from its coinbase address, the cointime framework assigns weight to each coin based on the duration of its inactivity. In essence, older coins, when they do move, wield a more substantial influence on Bitcoin’s economic activity.
Bitcoin Encounters Challenges Before Next Bull Run
As Bitcoin navigates its path towards the next bull run, it confronts a multitude of real-world challenges. One immediate hurdle is the macroeconomic environment. In periods marked by rising interest rates, investors often gravitate towards risk-free assets that guarantee consistent yields. In this context, Bitcoin, which lacks intrinsic value and the potential for cash flow generation, faces tough competition with assets like Treasury bills or cash. Additionally, Bitcoin faces the imperative to validate its utility beyond being an investment vehicle. Currently, while Bitcoin is viewed as a highly disruptive technology, the majority of individuals are primarily interested in holding the asset in anticipation of price appreciation, rather than actively utilizing it for transactions. On the positive side, there is a bullish argument for Bitcoin’s forthcoming halvening event in April 2024. Historically, this event, which reduces miners’ rewards, has heralded market upswings.
