In the midst of the ongoing bear market, investment firm Ark Invest and blockchain security provider Glassnode have unveiled a conceptual framework for comprehending the Bitcoin (BTC) economy.
The whitepaper, “Cointime Economics: A New Framework For Bitcoin On-chain Analysis,” which promises to offer a toolkit for understanding the economic reality of Bitcoin in a new way, was released by Ark Invest on Thursday.
James Check, the chief analyst at Glassnode, and David Puell, a research associate with ARK Invest, jointly wrote the study.
It focuses on the distinctions between the existing unspent transaction (UTXO) and a new model termed “cointime” that determines the “real economic weight of a Bitcoin.
The cointime economics method evaluates a bitcoin’s significance based on when it was most recently moved.
It introduces the idea of a “coinblock,” which increases the quantity of Bitcoin by the quantity of blocks generated while the Bitcoin is still in place.
10 coins, for instance, represent 100 coinblocks if they are kept during the time it takes to create 10 blocks.
According to the whitepaper, frequent coinblock destruction is a sign that long-term Bitcoin holders are offloading their holdings.
These “smart money” investors frequently have larger Bitcoin balances, engage in trading with lower cost bases, and post higher profit margins.
The document also provides two new criteria for assessing the economic health of Bitcoin.
This includes “liveliness,” which gauges how frequently coins are moved or destroyed on the network, and “vaultedness,” which relates to the quantity of coins kept and indicates how inactive the protocol is.
The cointime framework, according to the authors, offers a systematic and mathematical method for calculating the economic significance of each bitcoin over time.
In other words, if old coins are moved, the economic activities surrounding bitcoin will be significantly impacted.
Before the Next Bull Run, Bitcoin Will Face Obstacles
As has been noted, Bitcoin must overcome a variety of practical challenges before the next bull run can begin.
The macroeconomic situation is one current obstacle for Bitcoin. Investors frequently gravitate towards safe investments that offer consistent returns in an environment where interest rates are rising.
In contrast to Treasury bills or cash, Bitcoin lacks the intrinsic value and potential for generating cash flow.
In addition to macroeconomic challenges, Bitcoin also needs to demonstrate that it has uses outside of just being an investment instrument.
Even though Bitcoin is currently regarded as a very disruptive technology, most individuals are more interested in holding the asset and watching for price growth than actually using it.
On the other hand, there is a positive case for the impending halving of Bitcoin in April 2024.
It has traditionally occurred before market rallies and lowers the incentives that Bitcoin miners receive.