Release of CM Real-Time Reference Rates Beta and CM Reference Rates Version 2.1 Updates

After substantial research and backtesting, today, Coin Metrics is happy to announce the release of the beta version of the CM Real-Time Reference Rates. The methodology document can be found here and we have provided a summary of our research here. We have also updated the CM Reference Rates to Version 2.1, detailed below.

CM Real-Time Reference Rates Background

The Coin Metrics’ CM Reference Rates is designed to act as a highly accurate pricing source for valuation and calculation of NAV. In order to deter against manipulation and provide a high quality price that is broadly representative of the market, the CM Reference Rates uses a longer time window of 61 minutes to collect trades and calculate asset prices. Thus, the shortest publication time for CM Reference Rates is once an hour. 

In some cases, clients need more readily available prices, in which case they are willing to trade some reduction in manipulation resistance for timeliness. 

To fit this need, Coin Metrics has created the CM Real-Time Reference Rates (RTRR). The CM Real-Time Reference Rates  asset prices are calculated once every second and feature a robust market selection framework for determining the constituent markets (exchange pairs) to include in a calculation and a rigorous calculation methodology that protects against many forms of manipulation while still generating a price that is indicative of the current market condition. 

CM Real-Time Reference Rates Beta Release

Today’s beta release includes historical and contemporaneous CM Real-Time Reference Rates for 203 assets (the same coverage universe as the CM Reference Rates). We have created an HTTP endpoint on the v3 (unstable) version of our API which you can review here.

During this beta release, Coin Metrics will review and refine CM Real-Time Reference Rates product. We expect the full release to occur in roughly a month, and it is expected to include a WebSocket implementation of the API.

CM Reference Rates Version 2.1 Update

Similar to the Kraken duplicate trades issue previously reported, Coin Metrics noticed and resolved several other exchange-related issues. For the reference rates generated contemporaneously since launch for a small number of assets, a small number of trades at the end of the calculation window could be excluded. Historical reference rates were unaffected. The constituent markets for the historical reference rates for Bitcoin and Ethereum have also been updated. 

Coin Metric’s robust methodology meant that the net impact of these issues was minimal. For Bitcoin, 2.7 years of history were affected. For the affected time period, the median absolute percent change in price is 0.2 percent and the mean is 0.8 percent. For Ethereum, 2.5 years of history were affected. For the affected time period, the median absolute percent change in price is 0.1 percent and the mean is 0.3 percent. Smaller assets had changes of similar time periods and magnitudes. 

However, out of an abundance of caution and transparency, Coin Metrics has recalculated and republished all Reference Rates for the impacted time period consisting primarily of  certain months in 2013, 2017, and 2018.

Along with this recalculation, the Version 2.1 update includes publishing hourly reference rates to our v2 (stable) API. Please note that, unlike the v3 API, the default closeType in the v2 API is “mn” or midnight UTC. Documentation can be found here.

Please reach out to Coin Metrics ([email protected]) for more information on the CM Real-Time Reference Rates or the CM Reference Rates.

LEO and LINK Coming to CM Network Data Pro

Coin Metrics is pleased to announce the version 4.1 release of our end-of-day CM Network Data Pro Daily Macro feed. 

This comes on the heels of our recent launch of real-time block-by-block data

Asset Additions

Version 4.1 adds several new assets: 

  • EOS (ERC-20)
  • LEO (ERC-20)
  • LEO (EOS)
  • LINK (ERC-20)

Metric Additions

Version 4.1 also adds several metrics

  • USD-denominated metrics are now available for DRGN, VTC, VET, and KCS

Please reach out to Coin Metrics ([email protected]) for more information on CM Network Data Pro. 

Coin Metrics’ State of the Network: Issue 14

Intro and Updates

Dear crypto data enthusiasts,

Welcome back to this week’s edition of Coin Metrics’ State of the Network, an unbiased, focused view of the crypto market informed by our own network (on-chain) and market data.

This week’s housekeeping items:

  • Coin Metrics is hiring! We recently opened up 7 new roles, including Blockchain Data Engineer and Data Quality and Operations Lead. Please check out our Careers page to view the openings.

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Weekly Feature

BTC Realized Cap Passes $100 Billion

On August 23rd, BTC realized cap passed $100 billion for the first time ever.

Realized capitalization  is a metric created by Coin Metrics that is calculated by valuing each unit of supply at the price it last moved. This is in contrast to traditional market cap which values each coin uniformly at the current market price. 

For example, if BTC’s current price was $10,000, traditional market cap would value every single coin equally at $10,000, even if some coins had not been moved for years. This would result in a total market cap of $178,981,250,000 (17,898,125 total BTC multiplied by $10,000). 

Realized cap, on the other hand, values each coin at the time it was last exchanged. So if a coin was last touched  for $2,500 in 2017, that particular coin would be priced at $2,500 instead of the current market price. Each individual coin is priced this way. This gives a more realistic measure of the economic significance of a crypto asset. Realized cap can be thought of as a measure of the average cost basis of Bitcoin holders (cost basis is basically the total amount originally invested). 

BTC’s realized cap rose dramatically from mid-2017 until early 2018, but then leveled off and even decreased until May 2019. BTC realized cap has grown from $77,041,669,541 on May 1, 2019, to a new all-time high of $100,214,944,535 on August 25th.

For comparison, ETH’s realized cap peaked at $54,743,000,000 on January 29, 2018. It has mostly decreased since then; as of August 25th, 2019, ETH’s realized cap is $27,743,000,000.

Since each coin is priced differently (depending on the last time it moved), we can get a more granular view of realized cap by looking at the contributions by price ranges. The below chart shows the proportion of realized cap attributed to BTC that last moved at different prices. As of August 25, 2019, 52% of realized cap was composed of BTC that last moved when BTC price was higher than current prices (i.e. holders that would sell for a loss if they sold at the current market price).

Comparatively, on January 31, 2018, 74% of realized cap was composed of coins that were last exchanged when prices were above current market prices. BTC’s realized cap was composed of a much higher proportion of coins that had last been exchanged in the $13,000 – $20,000 range. This signifies that capitulation is most likely almost complete, since a majority of coins that were bought above $13,000 have now been sold. A relatively large amount of BTC ownership is now concentrated in the $3,000 to $12,000 range, which is setting up for a healthier base.

Network Data Insights

Summary Metrics

The major crypto networks were relatively stable over the past week. BTC, ETH, and XRP market caps all fluctuated by less than 2% compared to the previous week. LTC was down the most, with a 4.8% decrease in market cap week over week.

BTC saw another big spike in hash rate, growing 8.2%, as mining difficulty also recently increased. LTC’s hash rate, however, continued to slide after its recent block reward halving. LTC’s hash rate fell 7.7% from the previous week.

LTC’s adjusted transfer value and transactions were both also down, dropping 45% and 14.9%, respectively. Transaction count for BTC, XRP, and BCH also fell. ETH is the only major crypto network that saw positive transaction growth over the week, rising 4.1%.

Network Highlights

BTC also reached another milestone on August 23rd: all-time mining revenue surpassed $14 billion. We define “mining revenue” as the total USD value of all block rewards plus fees (both of which get paid out to miners) calculated on a daily basis, using that day’s price.

Similar to realized cap, BTC mining revenue increased significantly from late 2017 to early 2018. It has grown fairly consistently since then, with another uptick over the last few months.

USDT-ETH active addresses (the count of unique addresses that were active in the network as a recipient or originator of a ledger change) skyrocketed over the past week, jumping from 38,600 on August 19 to over 78,800 on 8/23. Meanwhile, USDT-OMNI active addresses continue to decline, despite two recent spikes. 

Market Data Insights

Tether Total Supply Continues To Grow Rapidly

Tether total supply continues to grow and recently reached an all-time high of 4.27 billion units. Current supply stands at 4.1 billion units (some units have recently been burned by the Tether Treasury), consisting of 2.54 billion issued on the Omni blockchain and 1.56 billion issued on the Ethereum blockchain. Although Tether issued on Ethereum has existed since late 2017, the number of Tether issued on it was low and was seldom used. This changed earlier this year, and the strong growth in Tether total supply can be almost all attributed to Ethereum.

Tether growth on Ethereum could be motivated by several factors. Tether Limited, the administrator of Tether, could seek to reduce its continuity risk by reducing its reliance on the Omni platform (which is not under active development) and Bitcoin. The shift between Omni and Ethereum could also be driven by market demand. The primary use case for Tether is for active trading and arbitrage. For these use cases, Tether on Ethereum is faster (15 second blocks for Ethereum versus 10 minute blocks for Bitcoin) and require less fees. In addition, exchange deposit-withdrawal confirmation times are typically lower for Ethereum-based tokens compared to Bitcoin. Since these characteristics are desirable for active traders, Tether issuance on Ethereum should continue to grow relative to issuance on Omni. The recent burn in Tether came solely from Tether issued on Omni.

Tether supply continues to grow despite the many threats to its existence. In mid-2018, several competing stablecoins launched, supported by several well-capitalized organizations, including TrueUSD, USD Coin, Paxos, and Gemini Dollar. The competing stablecoins and the large fall in prices contributed to flat or negative Tether growth throughout the later half of 2018 to the first half of 2019. However, despite the New York Attorney General announcing an investigation into Tether in April 2019 and the revelation that Tether is not fully backed by fiat currency, Tether growth continues. This suggests that the appeal of Tether to market participants is not only serving as a stable asset pegged to the U.S. dollar but also as a means to evade the scrutiny and regulations that are connected with the global financial system. Tether’s existence in this gray area, in market participants’ eyes, is not a shortcoming but rather a desirable feature.

Relationship Between Bitcoin Price Growth and Tether Supply Growth Deserves Continued Study

Since Tether’s position as a critical quote currency that facilitates trades on exchanges remains unchallenged, the narrative that Tether is responsible for or connected with price growth deserves continued study. In a paper titled “Is Bitcoin Really Un-Tethered”, Griffin and Shams (2018) study two plausible explanations: whether Tether is “pulled” (demand-driven) or “pushed” (supply-driven). Tether is “pulled” if more Tether is issued in response to demand from investors that wish to exchange fiat currency to Tether. Tether is “pushed” if Tether Limited issues Tether regardless of the demand from investors. 

Here we use a back-of-the-envelope analysis that compares Bitcoin one-month price growth overlayed with Tether one-month supply growth. The chart below indicates that prior to 2019, Tether supply growth would increase when price growth was slowing, and supply growth would often peak at price bottoms. This is consistent with Griffin and Shams’ findings that support a supply-driven manipulation hypothesis where investors “use Tether to purchase Bitcoin when prices are falling.” They conclude that “such price supporting activities are successful, as Bitcoin prices rise following the periods of intervention”.

In recent months, however, the relationship appears to have changed. Strong price growth was observed in April of this year but was not preceded by changes in Tether supply. Strong tether printing now appears either concurrent with or lagging price growth, supporting the “demand-driven” hypothesis. The most recent observations indicate that Tether growth has flattened or become slightly negative as prices have done the same.

CM Bletchley Indexes (CMBI) Insights

Across the market most crypto assets were down for the week again. Interestingly for the second week in a row the Bletchley 40, small cap assets, performed best. Whilst it is still too early to call a resurgence in the small cap market, two consecutive weeks of strong returns against the large caps could indicate that investors are finding value at current levels.

Small Cap assets have had a tough year in BTC terms. The market has clearly favoured Bitcoin so far this year after experiencing 2.5-3x returns in price. Off the back off this performance, small caps have struggled to rally and their relatively low levels of liquidity have provided little support for the sell volume that many have experienced. As mentioned above, the last two weeks have provided some respite for small caps and it will be interesting to monitor how this progresses over the next month.

Subscribe and Past Issues

If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

Coin Metrics’ State of the Network: Issue 13

Intro and Updates

Dear crypto data enthusiasts,

Welcome back to this week’s edition of Coin Metrics’ State of the Network, an unbiased, focused view of the crypto market informed by our own network (on-chain) and market data.

This week’s housekeeping items:

  • Coin Metrics was recently featured in the Wall Street Journal! Checkout the full article here.
  • Last week, we released a new research report about evaluating fork legitimacy. The long-form piece examines whether an exchange, index provider, investment manager, or any market participant should support a new fork or credit holders of the parent chain with units of the forked asset. Read the full report here.
  • Coin Metrics is hiring! We recently opened up 7 new roles, including Blockchain Data Engineer and Data Quality and Operations Lead. Please check out our Careers page to view the openings.

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Weekly Feature

Analyzing Wealth Distribution in Crypto

The distribution of wealth in crypto assets has been a recent topic of debate. The debate has centered around whether a lack of wealth distribution — i.e., wealth centralization — could prevent future adoption of crypto. 

While this is an important question to answer, before it can be answered, we must first ask how is wealth actually distributed in crypto? Is distribution unequal? How does it compare to other asset classes? And by what metrics can we measure this?

In this week’s feature, we’ll discuss how to define and measure wealth distribution, and look at some data for the top crypto assets. This will be the first of several pieces to look at wealth distribution data and Coin Metrics will continue to explore this topic in the future. 

To begin, it’s important to distinguish between wealth distribution and income distribution. Wealth distribution differs from income distribution in that it looks at the distribution of ownership of the assets in a society, rather than the current income of members of that society. In all state economies, wealth is significantly less equally distributed than income. 

According to The World Economic Forum (WEF) Inclusive Development Index 2018, “this problem has improved little in recent years, with wealth inequality rising in 49 economies.” The table below highlights this discrepancy across the 5 most productive state economies and the most distributed (Iceland) and least distributed (Namibia) economies among the sample studied. In the United States, wealth is almost 2.3 times less equally distributed than income when measured by the Gini Coefficient. The Gini Coefficient is a statistical measure of distribution. The coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0% representing perfect equality and 100% representing maximal inequality.


Table 1: Wealth and Income Distribution Across Select Countries in the WEF Inclusive Development Index 2018

Before we turn to crypto, there is another critical point worth making: “wealth” in the WEF Index report is defined as the value of all financial assets plus real assets (principally housing) owned by households, minus their liabilities. The Wealth Gini Index therefore measures the distribution of multiple assets and it measures distribution at the household, not individual, level. 

When making comparisons of such metrics to crypto or other asset classes, it is therefore important that we compare apples to apples. 

Measuring Wealth Distribution in Crypto Assets: The Trouble With Addresses

Because crypto assets are not state economies, and because we cannot get exact numbers on individuals or households participating in crypto networks, we i) cannot measure income distribution and ii) can only measure wealth distribution using proxies for individuals such as addresses (an address is the alphanumeric identifier of an account of the ledger of a crypto asset). This creates two problems:

  • Addresses can be owned by individuals and businesses (or other groups of individuals)
  • One entity can own multiple addresses

Addresses not only pertain to individuals but also to businesses and other groups. Complicating things further, because any one individual or group can own many addresses, determining the number of individuals represented across all addresses holding a crypto asset is impossible. On one hand, a single exchange address could represent millions of individual owners. On the other hand, one individual could own millions of addresses. 

Ultimately, this means that measuring the wealth distribution of a crypto asset via addresses is a unique exercise, one that should not be used to compare to traditional methods used for other asset classes. 

With that said, let’s look at some useful metrics for measuring wealth distribution in crypto. 

Wealth Gini Coefficient

The Wealth Gini Coefficient of crypto assets is often used as a means of highlighting the supposed inequality in crypto with many citing previous attempts such as this piece by Balaji S. Srinivasan. For a description of how Gini is calculated, please see Balaji’s piece. 

Calculating Wealth Gini across various crypto assets takes considerable effort. It is a metric that Coin Metrics is working to add to its arsenal. In the interim, it’s useful to reiterate a couple challenges with i) calculating this metric and ii) in using it to compare crypto to external networks such as state economies. 

First, is the choice of sampling unit. As described above, for state economies, the sampling unit of choice is often a household. For crypto assets, there is no way to measure individuals or households so we must work with addresses (and choosing which subset of addresses to sample is tricky). 

Not only does the sampling unit differ in crypto but here we are also measuring the distribution of a single asset, the crypto asset itself, and not of all of a household’s assets minus liabilities as we do when calculating Wealth Gini in state economies. It’s very likely that the distribution of a single asset in a state economy, such as real estate, is far less equally distributed than all assets combined, particularly when subtracting liabilities. 

Other Wealth Distribution Metrics

Beyond Wealth Gini, there are several other metrics that we can look at to give us insight into the distribution of crypto assets. Below is a snapshot from August 17, 2019 for the top 5 crypto assets. 

Table 2: Wealth Distribution of the Top 5 Crypto Assets by Market Capitalization

BTC, the oldest asset, is by far the most distributed by metrics such as the number of addresses with meaningful balance (defined as owning one in one-billionth of supply). However, Bitcoin addresses also have the highest mean/median address balance and Bitcoin boasts the most address USD millionaires. 

Aside from BCH (a recent but prominent BTC fork), ETH appears the next most distributed by these data despite being the youngest. Not only does it have a large number of addresses with meaningful balance but it has a low mean address balance. Comparing between different networks however isn’t straightforward. Ethereum’s gas fee mechanics tends to leave more dust behind (dust refers to balances smaller than the fee necessary to move them). This could make ETH appear more equally distributed by lowering mean account balances. On the other hand, Ethereum is also an account-based protocol. Compared with UTXO-based protocols, users of account-based protocols often re-use addresses which can make account-based protocols appear less equally distributed when using address-based metrics. 

Of this sample of assets, XRP appears the least equally distributed.

Keep in mind that many of the above metrics are influenced by the market capitalization of the asset. Since BTC has the highest market capitalization, it might appear to have higher wealth centralization. If we scale the non-BTC assets to the same market capitalization and multiply all metrics by this multiplier, an interesting picture emerges. We would however caution placing too much emphasis on this data since scaling in this way makes a number of assumptions that are unlikely to hold true (particularly for direct forks such as BCH). 

Table 3: Wealth Distribution of the Top 5 Crypto Assets by Market Capitalization Scaled to BTC’s Market Capitalization

Finally, an important consideration in the wealth distribution of an asset is time. This is clearly evidenced with BTC, the oldest asset, in the chart below. Taking the slopes of the trendline of these curves tell us the current rate of distribution. For example, using the slope of the trendline from chain launch, every new day we would expect 218 new addresses to hold at least 1 BTC. However, since the early days of distribution on the Bitcoin network are unlikely to represent distribution patterns today, taking a more recent slope might make more sense.  

Chart 1. The Number of Addresses With At Least X Native Units of BTC

Table 4: Slope of the Curve of BTC Distribution Bands

Below are distribution charts for the other five assets. 

Chart 2. The Number of Addresses With At Least X Native Units of XRP

Chart 3. The Number of Addresses With At Least X Native Units of ETH

Chart 4. The Number of Addresses With At Least X Native Units of BCH (From Fork Date)

Chart 5. The Number of Addresses With At Least X Native Units of LTC

To summarize, measuring the wealth distribution in crypto requires novel approaches. It requires using addresses which do not map perfectly to individuals or households and it measures wealth in only a single asset (not all household assets minus liabilities) so it is not directly comparable to traditional measures of wealth distribution of state economies. Coin Metrics will continue to publish more research on this topic in the months to come. 

Network Data Insights

Summary Metrics

It was another rocky week for the major crypto assets. After a brief surge, metrics dipped during the middle of the past week as Bitcoin fell back under $10,000. On average, BTC’s Market Cap fell by over 10% over the last week. ETH, XRP, and LTC market cap also all fell by at least 10% as well. Realized cap, however, remained relatively stable for all five metrics.

Transfer count, adjusted transfer value, and daily fees were also down across the board. LTX and XRP were both hit particularly hard; XRP’s adjusted transfer value fell by 31.5%, and LTC’s daily fees fell by 39.6%.

LTC’s hash rate also dropped significantly, down 11.3% from the previous week. BTC’s hash rate also fell (4.6%) while ETH’s stayed relatively stable. BCH’s hash rate, however, increased over the past week, rising by 5.7%.

Network Highlights

LTC’s hash rate has continued to fall after its recent block reward halving. Hash rate has dropped from 426 TH/s on August 5th (which was the day of the halving) to 317 TH/s as of August 17th.

BTC’s all-time aggregate mining revenue is on pace to reach $14 billion by the end of the week. As of August 17th, BTC has generated over $13,918,000,000 of total mining revenue.

The number of addresses that hold any balance of USDT (Omni) fell precipitously over the past week, as USDT users continue to shift over to the Ethereum version of the protocol.

Market Data Insights

Short-term Correlation Remains High

Prices of major crypto assets declined modestly over the past week. Correlation over short-time periods remains high with almost all crypto assets moving in lockstep when examined intraday or over a period of a few days. 

An examination of the three largest crypto assets more clearly illustrates the high intraday correlation. When examined over this time period, crypto assets tend to trade as a single asset.

Despite High Correlation, Dispersion of Returns is Large

The high correlation among assets obscures large dispersion of returns when examined over moderate timescales. Despite all asset prices having near identical directional reactions in response to systematic events that affect the asset class as a whole, over moderate timescales asset-specific fundamentals do matter. 

The high correlation with large dispersion of returns indicates that a long-short strategy can be effective expressing market views. For certain assets, it may be easier to determine which ones are becoming fundamentally stronger or weaker rather than attempt to anticipate the direction of the asset class as a whole which is vulnerable to external event-driven shocks that are unpredictable. 

For example, a long Bitcoin, short ZCash position would have returned +31 percent over the past month and a long Bitcoin, short TRON position would have returned +38 percent. Even adjusting for high cost of borrowing and trading costs, there long-short trades can be highly profitable. 

Volatility Remains Elevated 

Volatility for many assets remains elevated compared to recent lows made in early 2019. Despite the safe haven narrative for Bitcoin, it’s volatility is similar to other major crypto assets. The asset class as a whole has experienced realized volatility of almost a magnitude higher than traditional asset classes. The high volatility combined with large dispersion of returns suggests that opportunities for actively-managed long-short strategies remain high. 

CM Bletchley Indexes (CMBI) Insights

All CMBI indexes fell sharply this week after a crypto asset market wide correction. As is evident through the returns of the Bletchley Indexes, this week’s correction was uniform across the large cap (Bletchley 10), mid cap (Bletchley 20) and small cap (Bletchley 40) crypto assets.

This is a very interesting result given the recent trend over the last three months. Over that period, in a positive week, Bitcoin (and as a result the Bletchley 10) has increased more than the rest of the Indexes. In a negative week, Bitcoin (and as a result the Bletchley 10) has either slightly increased or fallen less than the rest of the Indexes. This week that trend broke with mid cap and small cap assets performing better than large cap assets.

Subscribe and Past Issues

If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

Coin Metrics’ State of the Network: Issue 12

Intro and Updates

Dear crypto data enthusiasts,

Welcome back to this week’s edition of Coin Metrics’ State of the Network, an unbiased, focused view of the crypto market informed by our own network (on-chain) and market data.

This week’s housekeeping items:

  • Coin Metrics is hiring! We recently opened up new roles, including Blockchain Data Engineer and Data Quality and Operations Lead. Please check out our Careers page to view the openings.

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Weekly Feature

Bitcoin Shows Potential as A Unique Safe Haven Asset

Bitcoin was born as a response to a deep, global recession caused by a financial system driven to the brink of collapse. Afterwards, central banks around the world responded with unprecedented and unconventional monetary policy. Amongst questions about its sustainability, Bitcoin got off to a slow start – in 2009, there were several days when less than one Bitcoin was transacted. But Bitcoin was able to survive in its early years partially because of the extreme macroeconomic environment that existed during the time. 

Macroeconomic conditions were supportive of Bitcoin’s growth for several years after its creation. The Fed alone initiated three rounds of quantitative easing between 2008 and 2013. Such extreme monetary policy decisions combined with the willingness of governments to bailout critical financial institutions led many to question the sustainability of such policies, creating many ideological-converts to Bitcoin in the process.

For the past several years, the world has enjoyed relative stability with moderate growth and the longest U.S. economic expansion in history. Thus, most recently, Bitcoin and other cryptoassets have grown without the supportive macroeconomic environment in which they were born in.

Recent developments present a radical shift in the macroeconomic and geopolitical environment. Faced with some softness in the latest macroeconomic indicators, widespread inversion of most developed world economy yield curves, negative nominal interest rates, a persistent inability to achieve central bank inflation targets, falling inflation expectations by market participants, and the possibility of a full-blown U.S.-China trade war, the Fed is once again leading the way in easing monetary policy. In the recent meetings of the Federal Open Market Committee, it is clear that the Fed is growing increasingly concerned about the potential impact of a negative shock to the economy and are willing to consider “insurance-type” interest rate cuts to sustain the current economic expansion.

Other central banks around the world have responded similarly. The ECB, although not yet cutting key interest rates, has adjusted its forward guidance to indicate more monetary easing. The PBoC recently has indicated its willingness to allow the yuan to float above the psychologically-important 7 level against the dollar (which they have defended in the past) to blunt the negative impact of additional U.S.-imposed tariffs. And a trio of emerging market central banks in New Zealand, India, and Thailand surprised market participants by announcing larger than expected rate cuts. 

Bitcoin has not been immune from the impact of this dramatic pivot – it too has risen in concert with the decline in global yields and rise in gold. Bitcoin’s intrinsic qualities indicate that it could effectively serve as a safe haven asset – particularly its decentralized nature making it immune to the control of and the policy errors of any centralized institution, as well as its high stock-to-flow ratio. Such qualities are important for something to serve as hard money. Analyzed under this lens, it shares many qualities with gold, and it is theoretically sound and logical to make the comparison between Bitcoin and gold.

This theory, combined with a look at the year-to-date price action, has breathed new life in the Bitcoin as a safe haven narrative. Indeed, the decline in real interest rates and increased concerns of geopolitical instability have driven gold to six-year highs and, as the narrative goes, has also driven Bitcoin to steeply recover from its lows.

Looking at a plot of the prices of Bitcoin and gold can easily lead to the conclusion that there is some positive relationship. Correlation coefficients, a summary statistic that is simple to interpret and calculate, is commonly used to provide an objective measure of the linear relationship between two timeseries. Despite the widespread use of correlation and its ease of interpretation, it is prone to misuse. Some analysts mistakenly calculate correlation using the prices (or level) and not the returns (or changes) of the two timeseries. Such an analysis can lead to misleading conclusions. Our analysis uses daily returns to calculate an economically-meaningful correlation coefficient.

The actual data provides only moderate support for the safe haven narrative. An analysis of a 90-day rolling correlation indicates that the Bitcoin and gold return has historically been uncorrelated with values oscillating around zero. Interestingly, the correlation has been steadily increasing since the beginning of this year as theory would expect. Current correlation is +0.20 – high relative to its historical range and increasing, but still low on an absolute scale where correlation coefficients can range from -1.0 to + 1.0.

Such a result should cause market participants to critically examine the safe haven narrative and be open-minded to the possibility that the relationship between Bitcoin and gold is spurious. Although backed by strong theory and the presence of compelling evidence that Bitcoin and gold both respond similarly to specific geopolitical events, a proper correlation analysis suggests that the relationship between the two is weak.

How can we reconcile these empirical results with the prevailing narrative? Perhaps Bitcoin has been rising in concert in gold not because they both respond similarly to the same macroeconomic and geopolitical factors but because Bitcoin has already experienced an 85 percent drawdown (historically the bottom of previous cycles) in combination with Bitcoin-specific factors like the news of Facebook launching its own cryptocurrency and continued institutional interest.

Still, this explanation does not fully explain the entire range of observations. Certain specific geopolitical events, not priced in by market participants, have caused strong intra-day movements in both Bitcoin and gold. Some of the most compelling of these events include Donald Trump’s presidential election, the Brexit referendum, and most recently the depreciation of the yuan in response to growing U.S.-China trade tensions. Such events suggest that the relationship between Bitcoin and gold is market regime dependent.

Under normal times, gold is responsive to standard macroeconomic variables, particularly changes in real yields. Bitcoin, an asset still in the process of maturing into a full-fledged asset class, is unresponsive to macroeconomic data. This explains the typically low levels of Bitcoin-gold correlation that oscillates around zero.

During times of heightened geopolitical risk, the desire for the stability of haven assets takes center stage over the macroeconomic situation. Under such circumstances, the intrinsic qualities of both Bitcoin and gold attract capital and can experience short-lived periods of high correlation.

Examining the Bitcoin-gold rolling correlation over a shorter time period like 30-days lends evidence to this narrative. Thus far, geopolitical tensions are rising but contained, and any flare up has been short-lived. A shorter rolling correlation window is more responsive to these short-lived events. Indeed, the current 30-day rolling correlation is +0.49, high relative to its historical range and also on an absolute basis. This trailing 30-day periods has been characterized by the highest escalation of U.S.-China trade war tensions thus far and suggests that Bitcoin serves as a unique safe haven asset – unresponsive to macroeconomic surprises but reactive to geopolitical tensions.

Bitcoin shows qualities of a unique safe haven asset, able to hedge against true black swan-type events where centralized institutions fail or commit policy errors while simultaneously being unresponsive to normal macroeconomic surprises. Bitcoin’s unique hedging capabilities combined with its volatility (almost a magnitude higher than traditional financial assets) makes it extremely desirable from a portfolio construction perspective, particularly portfolios that tend to volatility-weight asset classes.

The world is taking a decisive step towards a macroeconomic environment and geopolitical climate that is more similar to conditions that were present at Bitcoin’s genesis – low interest rates, unconventional monetary policy, and rising geopolitical tensions. This shift should be supportive of Bitcoin’s price in the long-run. Moreover, the probability of some severe event has risen sharply – driven either by some policy error in a major developed world economy, the ineffectiveness of current monetary policy tools to address slowing economic growth, unexpected election outcomes, social unrest, or sovereign debt defaults and wars at the extreme. Most troubling is that the undercurrent of social tensions is occuring in a world where macroeconomic conditions and asset prices are quite good. Under a global recession, these social tensions should increase in intensity and could lead to a watershed moment in Bitcoin’s status as a safe haven asset.

Network Data Insights

Summary Metrics

On August 5th, LTC’s block reward halved from 25 LTC to 12.5 LTC. Since then, LTC’s market cap and realized cap have both declined; LTC’s market cap is down 4.7% week over week, while BTC’s market cap is up 13.9% over the same period. 

LTC mining revenue is down 54.3% over the previous week, due to the decrease in issuance per block. This sudden drop in total mining revenue will force many inefficient miners out of the market, unless they are able to adapt and quickly cut costs. LTC’s hash rate fell by over 12% from the previous week which signals that miners are already starting to leave the network. 

LTC transfers and active addresses, on the other hand, both grew by over 65% since last week. Additionally, LTC’s adjusted transfer value is up over 32%, while BTC’s adjusted transfer value is up only 1.2%. 

BTC’s average daily fees also shot up by over 44%, even though transactions and transfers stayed relatively flat. BTC and ETH hash rate both rose, in contrast to LTC’s hash rate drop.

Network Highlights

The number of addresses owning at least 1 billionth of Bitcoin’s supply is at an ATH. At current prices, only addresses owning >$200 in BTC are counted towards this metric.

LTC’s hash rate began to drop after the block reward halving on August 5th, and bottomed out at 358 TH/s on August 7th. However, it began to rebound after the 7th, and climbed back to 413 TH/s by August 10th.

The number of addresses that held any LEO balance (on Ethereum) plateaued over the last month. On August 10th, there were 1,789 addresses with any balance, up by only 79 addresses (1,710 total) on July 10th. 

Market Data Insights

Bitcoin is up over 80% over the past year, outperforming almost all other crypto assets. Although many market participants track the value of smaller assets in prices quoted against the U.S. dollar, occasionally it is useful to view prices quoted against Bitcoin. Bitcoin-quoted markets are not only the major market for many of the smaller assets, it also represents the foregone appreciation of holding non-Bitcoin assets and not holding Bitcoin. 

The following chart shows indexes prices denominated in Bitcoin over the past year. Among the major assets that Coin Metrics tracks, only Binance Coin has outperformed Bitcoin by 44%. All other major assets are down significantly in Bitcoin terms.  

Smaller assets have even steeper declines. Such declines are similar in magnitude to the U.S. dollar denominated declines experienced in the depths of crypto winter. Smaller assets have been doubly hit — declining sharply on the way down and also appreciating less as the overall market (represented by Bitcoin) has recovered. 

CM Bletchley Indexes (CMBI) Insights

Bitcoin dominance, a measure of Bitcoin’s market cap relative to the total crypto assets marketcap, has been increasing significantly since April. The last 3 months have seen Bitcoin’s dominance increase from 50% to 70%, a level that has not been witnessed since April 2017. To add some context to this, the last time Bitcoin commanded a 70% market dominance the price of Bitcoin was ~$1,200 and the price of Ether was ~$20. 

As can be concluded from the weekly performance of the Bletchley Indexes, low cap crypto assets have experienced the biggest drawdowns recently. Not only have they experienced negative USD price action, but since Bitcoin finished the week up 4%, their price in Bitcoin terms has depreciated significantly. 

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Coin Metrics’ State of the Network: Issue 11

Intro and Updates

Dear crypto data enthusiasts,

Welcome back to this week’s edition of Coin Metrics’ State of the Network, an unbiased, focused view of the crypto market informed by our own network (on-chain) and market data.

This week’s housekeeping items:

  • Coin Metrics is pleased to announce the launch of block-by-block data for its popular institutional network data product,CM Network Data Pro. This Real-Time Block-by-Block feed features 83 metrics aggregated across every block. Metrics include transactions, transfers, active addresses, fees and miner revenue, on-chain exchange flows, and more. Please reach out to Coin Metrics ([email protected]) for more information on the CM Network Data products.
  • Coin Metrics is hiring! Please check out our Careers page to view the openings.

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Weekly Feature

A Look Back at the Last Year of ETH On-Chain Data

Last week, Ethereum (ETH) celebrated its 4th birthday. In honor of the occasion, we looked back at the last 365 days of on-chain data for ETH and some of the biggest ERC-20 tokens. 

After a wild third year in which ETH price climbed to a peak of just over $1,400 USD, ETH came back down to earth over the past year. Starting at a realized cap of over $42 billion in August 2018, ETH’s realized cap fell to $28.5 billion as of July 30th, 2019. However, ETH’s realized cap began to stabilize and increase again in late May 2019. 

Realized cap is calculated by valuing each unit of supply at the price it last moved. Realized cap can be thought of as the cost basis for the average holder:

We also looked at the realized market cap for ten of the largest ERC-20 tokens: Basic Attention Token (BAT), Dai (DAI), FunFair (FUN), Gnosis (GNO), Golem (GNT), Decentraland (MANA), Maker (MKR), OmiseGO (OMG), Augur (REP), and 0x (ZRX).

Similar to ETH, realized cap fell for most of these ERC-20 tokens over the past year. MKR and DAI, however, both rose. MKR’s realized cap grew to over $608 million on July 30th, 2019, up from $479 million twelve months earlier.

The following chart shows each ERC-20’s daily average market cap plotted against its daily average realized cap (averaged from 7/31/2018 to 7/30/2019). This shows the tokens compared against each other on an absolute basis, while the above charts are scaled to each particular asset (i.e. each subchart has its own y-axis scale). 

OMG has a high realized cap relative to its market cap. However, OMG also had a relatively large airdrop in September 2017, which may skew some of its metrics.

Despite the drop in realized cap, the number of ETH addresses that held any balance (i.e. greater than zero) grew steadily over the past year. The below chart shows the daily count of ETH addresses that closed the day with a balance above zero. As of July 30th, 2019, ETH had over 28.8 million addresses with a balance. 

Addresses with balance also grew for all of the ERC-20s over the past year. DAI addresses with balance have been growing particularly quickly, rising from under 4,600 to over 63,000 over the past year. BAT addresses with balance also grew significantly, going from under 67,000 on July 31st, 2018 to over 175,000 by July 30th, 2019. OMG’s addresses with balance, on the other hand, plateaued almost a year ago.  

The below chart shows each ERC-20’s daily average number of addresses with a balance plotted against its daily average number of unique active addresses (daily average from 7/31/2018 to 7/30/2019). BAT has an average of 99,128 addresses with balance, and an average of 1,496 active addresses a day. OMG has about 649,000 addresses with balance, but an average of only 929 daily active addresses.

ETH adjusted transfer value has fluctuated with price over the past year, staying mostly between $250 million and $750 million per day.

DAI is increasingly becoming the dominant ERC-20 for transfers. DAI’s daily adjusted transfer value has been picking up steam since April 2018.

The below chart shows each ERC-20’s daily average adjusted transfer value plotted against its daily average transaction count (daily average from 7/31/2018 to 7/30/2019). DAI, the only stablecoin out of the tokens we analyzed, is way ahead of any of the other ERC-20’s, with an average of over $25 million in adjusted transfer value a day. DAI also has a significantly higher transaction count than the rest of the tokens, which indicates that users are relying on DAI for transfers much more than the less stable tokens.

Network Data Insights

Summary Metrics

On-chain activity rebounded over the past week. BTC led the way in most of the major metrics, with a 5% gain in market cap and 2% gain in realized cap. BCH also had a relatively strong week, gaining 6% in market cap.

Adjusted transfer value rose across the board, led once again by BTC at 24%, with XRP in close second at 22%. ETH and LTC’s adjusted transfer value also rose, but less dramatically, increasing by 11% and 6%, respectively.

Network Highlights

BTC’s realized cap continues to break all-time highs. On August 4th, the BTC realized cap reached over $97.2 billion.

While realized cap has been rising, BTC’s median fee has been falling. The median BTC fee dropped to under $0.16 on August 4th, which is the lowest it has been since late March.

Market Data Insights

Empirical Data Supporting the Safe Haven Narrative is Mixed

Over the past several months, global markets have begun pricing in increasingly higher levels of geopolitical risk (primarily driven by flare ups of U.S.-China trade tensions but also driven by increased risk of European Union fragmentation, and increased likelihood of disruption in shipping in the Persian Gulf). These geopolitical events have been occurring against a backdrop of slowing global growth and yield curve inversions. Additionally, inflation measures coming in consistently below central bank price stability targets have put pressure on the world’s major central banks to initiate easier monetary policy in order to uphold their mandates and sustain the current economic expansion. 

Under this macroeconomic environment, Bitcoin has experienced strong gains this year which has coincided with similarly strong gains in classic safe haven assets — chief among them gold, but also U.S. sovereign bonds, the Swiss franc, and the Japanese yen. This relationship has breathed new life in the narrative that Bitcoin can serve as a haven asset. 

Testing this theory using empirical data is difficult because of the number of confounding variables at play that can affect price. In this week’s State of the Network, we examine the price impact and trading activity surrounding the previous 16 meetings of the Federal Open Market Committee (FOMC). 

The Fed holds eight regularly scheduled meetings each year in which a statement describing their policy decision is released, sometimes held concurrently with a press conference in which reporters can ask questions to the Fed Chairman. Such events are interesting because they are scheduled far in advance, widely monitored and anticipated by market participants, and often contain new macroeconomic information that affect the prices of nearly all assets. Indeed, it is common to observe an immediate reaction in major asset prices (e.g. equities, bond yields, gold) precisely at the moment that the FOMC statement is released at 14:00 EST. 

An examination of Bitcoin’s price to Fed meetings shows that, with a few exceptions, Bitcoin is unresponsive to such macroeconomic surprises. The chart below presents Bitcoin’s price indexed to the time of the publication of the FOMC’s statement, twelve hours before and twelve hours after the event. Even allowing for a delayed reaction in Bitcoin’s price due to market inefficiency, price reaction is generally quite muted in contrast to traditional financial assets, including haven assets that Bitcoin is often compared to. 

A lot of attention was given to the most recent Fed meeting that concluded on July 31 because this was the first time in Bitcoin’s history that the Fed cut interest rates. Despite the historical significance of this event, virtually no price reaction was observed. However, beyond some comments that indicate that the Fed is slightly less dovish than expected, little new information was released in this meeting as this cut was widely telegraphed in advance and priced in. 

The most impactful Fed meeting of this year is likely the one that concluded on March 20 in which the Fed made a dramatic shift in their forward guidance — a shift from monetary policy tightening to loosening, combined with the publication of projections that reduced this year’s anticipated interest rate increases from two to zero. In response to this meeting, there were large movements in asset classes with U.S. sovereign bonds rallying and the U.S. dollar declining. Despite this somewhat unexpected dovish pivot by the Fed, Bitcoin price was unresponsive. 

Bitcoin’s response to Fed meetings in 2017 and 2018 are also quite muted, although slightly larger compared to recent meetings due to the higher volatility that existed during those periods.

Examining trading volume surrounding the conclusion of Fed meetings reveals a similar picture. With a few exceptions, there is no widespread evidence that market participants adjust their Bitcoin positions in the face of new macroeconomic information. 

However, there was a burst in trading activity surrounding the Fed meeting on May 1st of this year with a small but concurrent movement in price. Interestingly, there was also evidence of moderately increased trading activity precisely at the moment of the conclusion of the most recent Fed meeting on July 31st. If this type of reaction is sustained in future Fed meetings, this would represent a milestone in Bitcoin’s development as an asset class. In subsequent issues, Coin Metrics will continue to examine Bitcoin’s reaction to critical geopolitical events and macroeconomic surprises, including this week’s Chinese yuan devaluation. The yuan devaluation and the US Treasury’s subsequent labeling of Chinese as a currency manipulator happened too late in the week to cover in this week’s issue, but we plan to cover this in depth next week.

CM Bletchley Indexes (CMBI) Insights

Weekly performance of Bletchley Indexes indicate that the large cap crypto assets performed the best this week, once again led by Bitcoin.

However, looking at the monthly performance of indexes, the market experienced a cool-down in July after 3 impressive months of positive gains. Most interestingly, the low cap assets sold off hardest over the period. 

In recent months, Bitcoin has been more volatile and has had larger returns during uptrends. But during downtrends small cap assets are more volatile and experienced large losses. This trend has not been common over the last two years.

During the August rebalance there were a few changes to the Bletchley Indexes. The most surprising result was Decred falling out of the Bletchley 20 due to failing an eligibility criteria regarding minimum monthly trade volumes. Below is a summary of all of the changes:

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If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.


Check out the Coin Metrics Blog for more in depth research and analysis.