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Amid a protracted bear market, a new conceptual framework for understanding the Bitcoin economy was launched Thursday.
“It provides a toolkit to properly understand the economic realities of Bitcoin,” Check told Decrypt, detailing that it “adds a new lens to assess the market.”
The whitepaper provides insight into the differences between the current unspent transaction (UTXO) a new "cointime " model for understanding what the authors call the “real economic weight of a Bitcoin."
Cointime economics approaches Bitcoin from a time-based perspective, proposing that the importance of Bitcoin is based on the last time a coin moved. The model introduces a new concept called a "coinblock," which essentially multiplies the number of Bitcoin and the number of blocks produced while the Bitcoin remains unmoved.
For example, 10 coins held during the time necessary to produce 10 blocks represents 100 coinblocks.
“Heavy coinblock destruction suggests that long-term holders are selling," the report explains. Bitcoin’s “smart money,” in other words, and they “typically hold larger bitcoin balances and trade from lower cost bases, generating higher profits."
According to the document, two new metrics can also be used to analyze Bitcoin’s economic state.
"Liveliness" refers to how active or alive the network is, or how often coins have been “destroyed” or moved. "Vaultedness" measures coins that are stored, alluding to how “inactive” the protocol is.
“We believe the Cointime framework provides a highly consistent, mathematical framework measuring the economic importance of each bitcoin through time,” the report read.
For Check, unlike the traditional UTXO (Unspent Transaction Output) analysis—which he says is “very granular and requires bespoke data engineering”—Cointime offers a “macro view.”
He explained to Decrypt that “it is simple to calculate and easy to replicate without proprietary data science.”
James Check, co-author and Glassnode’s lead analyst, told Decrypt that under this framing, “the bear market is much worse than expected.”
In the Cointime’s model, “since lost coins were largely in the early years, they hold tremendous unrealized profits (over $35 billion),” said Check. “However, when we use 'cost basis' models like realized price, the losses held by active investors are masked by the profits held by lost coins.”
“Under this framework, the true cost basis of the market is actually at around $32,000, which we are still underneath,” Check added.
Puell and Check highlight several value propositions of cointime economics, including reassessing Bitcoin’s inflation rate and the network’s valuation. Check suggested that cointime economics has two possible areas of use.
“On-chain analysts who are deep in the field and will use it to inspire new ideas,” he said, and “institutional investors looking for simpler models with higher signal.”
The co-authors concluded that “at the core, we have a simple mathematics toolkit to achieve vastly superior economic and valuation models which account for both the supply and demand side of the market.”