This article is the 6th in the On-Chain Data Academy series, which consists of 10 articles. Articles 6 to 8 will be part of the Cointime Price series, which is significantly more advanced than the first five articles. For first-time readers of the “On-Chain Data Academy series” who wish to learn about on-chain analysis, it is recommended to start with the first five articles.
(Background summary: On-Chain Data Academy (I): Do you know what the average cost of BTC in the whole market is?)
(Background supplement: On-Chain Data Academy (II): The Hodlers who always make money, what is their cost of buying BTC?)
TLDR
The Cointime Price series will be divided into three articles, this is the first one.
This article will introduce the basic principles and bottom-fishing applications of Cointime Price.
Cointime Price is a novel and efficient method for pricing BTC.
It is more rigorous compared to Realized Price and more sensitive compared to LTH-RP.
Basic Introduction to Cointime Price
The concept of Cointime Price originated on 2023/08/23, proposed in the “Cointime Economics” created by Ark Invest and Glassnode.
The calculation logic of Cointime Price itself is relatively complex, and this article will attempt to explain it in a straightforward manner.
Cointime Price is a pricing model designed for the unique UTXO structure of BTC. In this article, I intend to skip the complex calculation process and directly introduce the principles to everyone.
In simple terms, since BTC is a blockchain, both block production and transaction transfers involve a verification process.
Unlike traditional on-chain pricing methods, Cointime Price uses a “time-weighted” approach:
As shown in the image above, the green line represents Cointime Price, with the calculation formula illustrated in the diagram.
It involves three concepts:
- Coin Blocks Created (CBC)
In the n-th block, CBC = the circulating supply of BTC at that time. - Coin Blocks Destroyed (CBD)
When a corresponding amount of BTC is transferred, it is deemed as destroyed. By multiplying the amount of BTC transferred by the time these BTC were held (the number of blocks that passed before the transfer), we can obtain CBD, which can be interpreted as the “time-weighted amount of BTC.” - Coin Blocks Stored (CBS)
CBS = Total CBC – Total CBD, which can be understood as the “time-weighted amount of BTC that has not been spent.”
In the above image, the numerator of the formula represents the sum of the CBD generated during each transfer, multiplied by the corresponding amounts.
From the aforementioned, we can deduce three characteristics of Cointime Price:
- Due to the time-weighted design, when long-term holders transfer (distribute) a large amount, the rate of change in Cointime Price will increase.
- Since transactions involve a buyer and a seller, from the buyer’s perspective, the numerator in the formula can also be viewed as the “total amount spent after time-weighting” currently in the market. Dividing this value by CBS yields the “average cost of chips processed through time-weighting in the market.”
- Since CBD takes transfer behavior into account, no transfer means no CBD is generated, effectively excluding the impact of lost chips from ancient times.
Comparison with LTH-RP
In previous articles, I introduced LTH-RP, which can be simply described as the average cost of BTC purchased by long-term holders. Given that Glassnode defines LTH as “holding time > 155 days,” it can only provide a relatively rough definition for “long-term.” In contrast, Cointime Price directly considers “how long the chips have been held when transfer behavior occurs,” making Cointime Price more precise and sensitive compared to LTH-RP.
As shown in the image above: whenever a major upward trend occurs, Cointime Price always responds ahead of LTH-RP, and it can more immediately indicate the occurrence of distribution behavior. Therefore, in my analysis, I actually prefer to use Cointime Price for market analysis.
Bottom-Fishing Applications
As mentioned earlier, Cointime Price provides a fair pricing for BTC through a time-weighted approach. Therefore, once the market price falls below Cointime Price, it indicates that the market price is lower than the true value of BTC, which is usually a good opportunity for bottom-fishing.
As shown in the image below: I have marked the historical points where BTC prices fell below Cointime Price, and it can be seen that these correspond to good entry opportunities.
Conclusion
This concludes the content of On-Chain Data Academy (VI). There will be two more detailed tutorials on Cointime Price to follow. Readers interested in learning more about on-chain data analysis should be sure to follow this series of articles!
If you want to see more analyses and educational content about on-chain data, feel free to follow my Twitter (X) account!
I hope this article has been helpful to you. Thank you for reading.