Long-Term Investments On Bitcoin's Network Increasing Along With Economic Throughput New Report Finds

A new report evaluating the health of Bitcoin's network has found that economic throughput on the network is increasing, along with two metrics which help to track long-term investments.

The report comes from Formal Verification — a digital assets research company — working in collaboration with Glassnode to evaluate the Bitcoin network's metrics as the year's second quarter pulls to a close.

It opens by stating that Bitcoin is best understood as a value transfer system, meaning users receive money for the purpose of making the funds payable to a third party whether or not the third party is paid using the same currency. The report argues that the best way to evaluate a value transfer system is by multiplying transaction count and the average size of a transaction on the system to derive the value moving through the system per unit of time, a metric called economic throughput. It then recommends evaluating economic throughput next to settlement assurances. With Bitcoin, the transfer is close to immediate and there is limited recourse if access to your wallet is lost or funds are sent to the wrong address. The report argues that these features mean Bitcoin is closer to a physical settlements system like cash or gold, rather than a delayed settlement system like a credit card.

When the report authors calculated Bitcoin's economic throughput they found that the network stands at $2.1 billion. The report found that average transaction value has increased over the years.

PC: Formal Verifications X Glassnode via report

Fee dynamics on the network suggest that Bitcoin is not a reasonable option for low-value transactions. Bitcoin users attach transaction fees to transfers to win the attention of miners, the higher the fee, the quicker the transaction will be mined. A low value transaction will likely be attached to a low miner fee and so it will likely get stuck in the miner waiting pool or mempool. However, the report states that higher transaction values are not associated with a lower transaction count. Meaning that even if transactions are becoming larger in value, they are not becoming less frequent. 

The report also found that the percentage of Bitcoin supply which has not moved in at least a year reached a new all-time high with 61.6%. The last all-time high was recorded January 2016 with 61.3%. Supply that had not moved in over 5 years also reached an all-time high at 22.1%, which the report concludes is a signal of a strong long-term investor base.

PC: Formal Verification X Glassnode via report

Another indicator named liveliness also helps to track investor habits on the network. Liveliness decreases when Bitcoin units are stored for longer-term and increases when HODLed Bitcoin is moved or liquidated. When Bitcoin crashed in March liveliness spiked and then continued to decline as long-term investors held on to their units through the price drop. The report uses liveliness to estimate how many BTC units are being HODLed or have been lost by subtracting the sum by one and multiplying it by BTC active supply. The report found that about 7.4 million BTC are HODLed or lost, the highest number since August 2017.

By Emily Mason

Related Articles