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On-chain analysts from Glassnode and Ark have introduced a novel framework for assessing the Bitcoin network’s “economic state.”
This framework, termed “Cointime Economics (CE),” aims to enhance the precision of on-chain analysis, which informed investors and traders frequently utilize to gauge the direction of Bitcoin’s price.
What is Cointime Economics?
As stated by lead analyst James Check from Glassnode, CE shifts away from evaluations based on Bitcoin’s unspent transaction outputs (UTXOs), which “focuses on individual transaction outputs and necessitates extensive datasets.”
Rather, the framework employs a new time measurement unit known as “Coinblocks,” generated each time a new Bitcoin block is added to the network. Subsequently, as Bitcoin UTXOs are utilized, the Coinblocks contained within them are eliminated.
In formulaic terms, Ark’s independent report on the subject defines Coinblocks as “coin volume times blocks held.”
“At a macro scale, the overall state of the network is characterized by Liveliness and Vaultedness, indicating the relative activity and inactivity of the supply, respectively,” Check noted in a blog post regarding the topic.
This measurement divides Bitcoin’s supply into two segments: “Active” and “Vaulted” (inactive) supply. These serve as new reference points for economic calculations, including “inflation rates, vaulting rates, and stock-to-flow ratios.”
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For instance, Bitcoin’s “inflation rate” is conventionally computed “by dividing annualized issuance by total outstanding supply,” as per ARK. However, when integrating CE, the inflation rate incorporates the ratio of active supply to vaulted supply by multiplying the previous inflation measurement by this ratio.
As of May 7, 2023, the nominal Bitcoin inflation rate was recorded at 1.64%, while the cointime-adjusted inflation rate was 2.48%.
What is Cointime Good For?
CE offers a significant benefit over earlier analytical methods by emphasizing the economic effects of “truly active supply” while diminishing the influence of long-vaulted supply, which likely encompasses lost coins.
In correspondence with CryptoPotato, Check elaborated on how Satoshi’s long-missing Bitcoin holdings have historically influenced metrics such as realized price – a measure of Bitcoin’s average coin price based on the last transaction of each network coin.
“The $35B in profit held by Satoshi is counterbalancing the $35B in losses by 2021 top buyers, resulting in MVRV presenting us with a ‘break-even’ level of 1.0,” Check stated. “We are overlooking the impact within the active and economically significant supply.”
Check emphasized that CE enables analysts to factor in lost coins using “simple mathematics” without the “need to identify which coins are actually lost.”
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