Analysts Introduce Innovative Framework to Decode Bitcoin Economy in Bear Market
Investment firm Ark Invest and blockchain security firm Glassnode have revealed a conceptual framework for understanding the Bitcoin (BTC) economy amid the ongoing bear market.
On Thursday, Ark Invest unveiled the whitepaper, titled "Cointime Economics: A New Framework For Bitcoin On-chain Analysis," which aims to provide a toolkit for comprehending the economic realities of Bitcoin in a new way.
The paper is co-authored by David Puell, a research associate for ARK Invest, and James Check, the lead analyst for Glassnode
It focuses on the differences between the current unspent transaction (UTXO) and a new model called "cointime" that assesses the "real economic weight of a Bitcoin."
The cointime economics approach considers the importance of a Bitcoin based on the last time it was moved.
It introduces the concept of a "coinblock," which multiplies the number of Bitcoin by the number of blocks produced while the Bitcoin remains unmoved.
For example, if 10 coins are held during the time taken to produce 10 blocks, this represents 100 coinblocks.
The whitepaper suggests that heavy coinblock destruction indicates that long-term holders are selling their Bitcoin.
These "smart money" investors typically possess larger Bitcoin balances, trade from lower cost bases, and generate higher profits.
Additionally, the document introduces two new metrics for analyzing Bitcoin's economic state.
This includes "liveliness," which measures the activity level of the network, indicating how often coins are moved or destroyed, and "vaultedness," which refers to the number of coins that are stored and signifies how inactive the protocol is.
The authors claimed that the cointime framework provides a consistent and mathematical approach to measuring the economic importance of each Bitcoin over time.
"Unlike the UTXO framework, which deems a coin as “moved” as it leaves its coinbase address, the cointime framework weights each coin by the time in which it has been static," the paper reads.
"In other words, if old coins move, they will have a larger impact on bitcoin’s economic activity."
Bitcoin Faces Hurdles Before Next Bull Run
As reported, Bitcoin faces a myriad of real-world obstacles on its journey to the next bull run.
One immediate hurdle for Bitcoin is its macroeconomic predicament. In a rising interest rate environment, investors tend to move towards risk-free assets that provide reliable yields.
Comparatively, Bitcoin lacks the intrinsic value and cash flow generation potential to compete with Treasury bills or cash.
Aside from macroeconomic headwinds, Bitcoin is also facing the need to prove its use case beyond being an investment vehicle.
As of now, while Bitcoin is considered a highly disruptive technology, the majority of people are primarily interested in holding the asset and hoping for its price appreciation instead of actively utilizing it.
On the other hand, there is a bullish argument for Bitcoin's upcoming halvening event in April 2024.
This event, which reduces the rewards earned by Bitcoin miners, has historically preceded market rallies.