Monday, October 2, 2023

A New approach to understanding the Bitcoin economy

The Bitcoin Economy? Would you like to more accurately measure the value of each transaction? Want to know how long BTC had been in its owners’ hands before being traded? So, Ark Invest and Glassnode have proposed a new analytical framework: the Cointime economy.

The Cointime economy is based on a new unit of measurement: the coin block. A coinblock is the result of multiplying the number of BTC by the time they have been at an address. Therefore, the time factor is taken into account when evaluating transactions, with more weight being given to those originating from hodlers (those who keep bitcoin for the long term).

With this method, it is possible to have a more complete and realistic idea of ​​​​the state of the Bitcoin network, its supply, demand and liquidity. In addition, the coin block can be compared to other economic variables such as the sentiment indicator, GDP, or inflation to better understand the impact of Bitcoin on the world.

Bitcoin is simply a code representing an exchange rate. Its price is determined by supply and demand. So, It makes the most sense to create analyses and forecasts based on supply and demand studies.

Personally, I am very pleased that Ark Invest and Glassnode have developed such a metric. In this field, there is a great need for serious people who will carry out their studies in a professional manner. This is a minority-dominated space and practically a phenomenon born of social networks. Many in this field like to rely on rumors, social networks, influencers, gurus, astrologers, tarot readers, dreams, divine signs, etc. to make their predictions. These sources are not very reliable or accurate. In fact, they can be very deceitful and manipulative.

One of the most common analysis and forecasting methods in this area is to use past patterns with fairly blind faith to make forecasts. In other words, past successes are used. Mostly, it is pointed out that Bitcoin has grown strongly in the past. And that means it will grow the same way in the future. The method is simple. Different years and different prices are noted to remind potential investors of the spectacular gains of the past.

Another method is to wildly draw lines on a chart and repeat the pattern for years to come. All of this is then meme-formed and shared on an anonymous account with a funny name to go viral. This creates an illusion of certainty. Naturally, These methods have no scientific or logical basis. In fact, they can be very dangerous and wrong.

Consider the stock-flow model popularized by influencer PlanB. This method has cult status. People believe in him, whether he makes mistakes or not. It’s very easy. That’s why it’s suddenly popular. Supply and flow determine the price of bitcoin. The flaw in this model is obvious. It overestimates the influence of supply and underestimates the influence of demand.

Let’s imagine I draw something on a piece of paper. Suddenly, my work is rarer than that of Picasso. Does that mean my work is more valuable? Of course not. The value depends on what people are willing to pay for it. And nobody would pay much for my doodle. The same applies to Bitcoin. It’s not enough that it’s tight. There has to be genuine, sustained demand for this to happen. The stock-flow model is collapsing like a house of cards.

Cointime is a much more reliable metric as it focuses on user behavior. It’s not about supply or flow; it’s about analyzing the level of buyer engagement and the number of sellers who are the least in control.

This is a market made up of buyers and sellers. If we can measure readiness to sell and then use other metrics to estimate readiness to buy, we can perform a more accurate and realistic analysis.

Coin time is based on the time each coin spends in one direction without moving. The longer the coin, the higher the coin time. This allows you to see if the coin owners are loyal or unfaithful, if they are hodlers or traders, if they are patient or impatient, if they are optimistic or pessimistic, and if they are humans or bots.

Of course, coin time is not a single thing. There are different types of cointime depending on what we want to measure. For example, the total coin time is the sum of all times of all coins. The coin time of the transactions is the time the coins were in motion. Hodler minting time is the time when coins stood still. With this data we can analyze the supply and demand of Bitcoin.

For example, if hodler cointime is high, it means there is little supply and lots of demand. When the cointime of the transactions is low, it means there is little activity and little interest. We can also compare Cointime to other economic metrics like GDP, Inflation, Unemployment, etc. This allows us to better understand the impact of Bitcoin on the world.

I think this measure will be more useful if we combine it with other measures. First, to find out how those who have bitcoin feel. On the other hand, it is about finding out what is happening with money and the economy in general.

It is not enough to know how long the coins have been at their addresses. You also need to know what the owners of these coins are thinking and feeling. Are you happy or sad? Are you confident or afraid? Are you optimistic or pessimistic? And you also have to know what’s going on in the world. Is there crisis or stability? Is there inflation or deflation? Is there an expansion or contraction? And above all, you have to know what the economic players expect. Do you expect bitcoin to rise or fall? Do you expect the authorities to intervene or not? Do you expect the market to regulate or deregulate? In the end you have to know a little bit about everything. Or at least, Have a little common sense and your own criteria.

World Nation News Desk
World Nation News Desk
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