Ark Invest, an investment company, in collaboration with blockchain security enterprise Glassnode, has introduced a novel approach to grasp the Bitcoin (BTC) economy, especially during the prevailing bearish trend.
Ark Invest presented the research paper on Thursday, named “Cointime Economics: A New Framework For Bitcoin On-chain Analysis.” This document aims to offer a fresh perspective and tools to understand Bitcoin’s economic dynamics.
The authors of this paper are David Puell, a research associate at ARK Invest, and James Check, the principal analyst at Glassnode.
The research sheds light on the variance between the existing unspent transaction (UTXO) model and a newly proposed “cointime” model, which evaluates the “true economic value of a Bitcoin.”
The “cointime economics” methodology evaluates the significance of a Bitcoin by referencing the last instance it was transacted.
This introduces the notion of a “coinblock,” calculated by multiplying the amount of Bitcoin by the number of blocks generated during the time the Bitcoin stays stationary.
To illustrate, if 10 bitcoins remain static through the creation of 10 blocks, this equates to a total of 100 coinblocks.
The research paper posits that a significant reduction in coinblocks signals that long-term Bitcoin holders are offloading their holdings.
Investors often referred to as the “smart money”, usually have substantial Bitcoin holdings, operate from a more affordable cost base, and yield greater profits.
The paper also presents two innovative metrics for scrutinizing Bitcoin’s economic condition.
One is “liveliness,” a metric that gauges the vibrancy of the network by showing how frequently coins are transferred or obliterated. The other, “vaultedness,” points to the volume of coins in storage, highlighting the extent of inactivity within the protocol.
The authors assert that the cointime method offers a uniform and mathematical means to determine the economic weight of each Bitcoin as time progresses.
“Contrary to the UTXO model that classifies a coin as ‘moved’ once it departs its coinbase address, the cointime model evaluates each coin based on the duration it has remained untouched,” the document states.
“This implies that when older coins are transacted, they exert a more pronounced influence on Bitcoin’s economic dynamics.”
Bitcoin Faces Hurdles Before Next Bull Run
Bitcoin, as observed, confronts numerous practical challenges on its path towards the next upswing.
A prominent challenge for Bitcoin is its macroeconomic situation. In a context where interest rates are on the rise, investors typically gravitate towards safer assets that offer consistent returns.
In comparison, Bitcoin doesn’t possess the inherent worth and capability to generate cash flows in the same way that Treasury bills or cash do.
Beyond these macroeconomic factors, there’s also pressure on Bitcoin to validate its functionality beyond just serving as an investment medium.
Currently, even though Bitcoin is viewed as a groundbreaking technological innovation, most individuals are mainly focused on holding onto the asset, anticipating its value to rise, rather than actively using it in transactions.
Conversely, there’s an optimistic perspective surrounding Bitcoin’s forthcoming halvening event scheduled for April 2024.
Such events, which diminish the rewards given to Bitcoin miners, have traditionally been followed by uptrends in the market.
