Investment company Ark Invest, in collaboration with blockchain security enterprise Glassnode, has presented a novel conceptual framework to understand the Bitcoin economy, especially during the prevailing bear market.
Ark Invest recently released a whitepaper named “Cointime Economics: A New Framework For Bitcoin On-chain Analysis”. Authored by David Puell from ARK Invest and James Check from Glassnode, this research introduces a unique approach to understanding Bitcoin’s economic nuances.
While traditionally, the focus was on unspent transactions (UTXO), this paper introduces the “cointime” model which gauges the “actual economic significance of a Bitcoin”. It emphasizes the importance of a Bitcoin based on its last movement.
A new term “coinblock” is introduced which multiplies a Bitcoin’s quantity by the number of blocks created while it remains stationary. For instance, if 10 coins stay put during the creation of 10 blocks, it amounts to 100 coinblocks.
According to the paper, a considerable destruction of coinblocks suggests that long-standing Bitcoin holders are parting with their assets. These investors, often referred to as the “smart money”, usually have significant Bitcoin holdings, benefit from lower trading costs, and realize higher returns.
The whitepaper also presents two innovative metrics to evaluate Bitcoin’s economic health: “liveliness”, indicating network activity and the frequency of coin movements or destruction, and “vaultedness”, which points to the volume of stored coins, reflecting the network’s inactivity.
The authors believe that this cointime model offers a systematic and mathematical method to gauge each Bitcoin’s economic value over time. They point out that, unlike the UTXO model, the cointime model assigns weight to each coin based on its stationary period. Consequently, when older coins are transacted, they have a more profound impact on Bitcoin’s economic activity.
However, Bitcoin’s path to its next bullish phase is laden with challenges. With the global economy witnessing rising interest rates, investors often favor assets with guaranteed returns, like Treasury bills, over Bitcoin which lacks inherent value and cash flow potential.
Furthermore, Bitcoin needs to validate its purpose beyond just being an investment medium. Currently, while its disruptive potential is recognized, most people hold Bitcoin hoping for its value to surge, rather than using it.
Yet, there’s an optimistic perspective tied to Bitcoin’s halvening event scheduled for April 2024. Historically, this event, which slashes rewards for Bitcoin miners, has been a precursor to market uptrends.