Coin Metrics’ State of the Network: Issue 23

The Signal and the Nonce: Hunting for ASICs in Nonce Distributions

The Great ASIC Debate

Since the early days of Bitcoin, the community has argued about whether to fight against increasingly powerful mining hardware. 

In Bitcoin’s early days, mining was performed by CPUs, which are the standard processing units found in most computers. This gave practically anyone the chance to mine BTC since no specialized computer hardware was needed.

As time went on, some miners started using more and more powerful hardware in order to gain an edge over the competition. Miners eventually started using GPUs, the more powerful “graphics processing unit,” which are typically used for gaming and 3D rendering but can be used for many general purposes. GPUs are more expensive than CPUs but are still generally affordable for the average individual.

Then came ASICs. ASICs, which stands for “application-specific integrated circuits,” are pieces of specialized mining hardware that are optimized to mine specific hashing algorithms. ASICs are designed to mine crypto, and only to mine crypto. They are significantly more powerful than GPUs in terms of raw hash power.

With ASICs came a shift in mining economics. Simply put, the companies that manufacture new ASICs have a large advantage over the rest of the mining community since they inherently have a hash power edge (at least temporarily, until other ASIC manufacturers catch up), and also control the supply of new ASICs being released to the market. The large capital upfront investment necessary to manufacture a new line of ASIC hardware also reduces the number of people able to participate in this business. There are large economies of scale for large miners, which makes it harder for the average miner to compete.

Because of this, many projects have tried to protect against ASICs. Notably, after Bitmain and others announced they were developing a Monero-specific ASIC in early 2018, Monero hard-forked to remain “ASIC-resistant,” to keep the mining community as decentralized as possible. Monero has had several hard forks since then to try to stay ahead of ASICs and disincentivize their further development. 

Similarly, Ethereum has been “ASIC-resistant” for most of its history (since version 1.0, Ethereum’s hashing algorithm Ethash has been designed to be ASIC-resistant) but ASIC manufacturers are now starting to catch up. As a result, many within the Ethereum community are now arguing for the implementation of ProgPow, a revision of Ethash to make Ethereum once again ASIC-resistant. 

Although these projects continue to fight to remain ASIC-resistant, it is hard to consistently stay ahead. Large miners are incentivized to develop ASICs since mining specialized hardware on ASIC-resistant blockchains can yield a large advantage over other smaller miners. This means that there is a constant game of cat and mouse between ASIC miners and blockchain developers.

Into the Nonces

Fascinatingly, examining nonce distributions gives a potential look into the rise of ASIC mining on certain chains and the subsequent attempts to keep them at bay. 

Proof of Work mining consists of hashing a block’s header over and over again until its hash is less than a protocol-defined target value. This is done by taking the block header as an input, and then running it through a cryptographic hashing algorithm, which for Bitcoin is Secure Hash Algorithm 256 (SHA-256, applied twice in a row).  

In order to get a different hash for each attempt without having to fully rebuild a new block header, a special field is provided to miners as part of the header: the nonce field. This is an arbitrary number that miners can change in order to modify the header and produce a hash that is less than the target hash value. The nonce is a number that can vary from 0 to whatever the upper limit set by each protocol. 

Given that, in theory, any nonce can result in a winning hash, it’s not unreasonable to expect that nonces are chosen randomly and therefore distributed uniformly. However, analysis of many blockchains shows that only few follow that expectation. Explanations for this are varied, but changes in nonce-picking strategies can often be linked with the introduction of new mining hardware suggesting that different mining hardware have different nonce-picking strategies.

This pattern was seemingly first noticed for Bitcoin by Twitter user @100TrillionUSD in early January 2019. Further analysis has shown some strange patterns in other chains like Monero, Ethereum, and Litecoin.


The most famous nonce distribution is Bitcoin’s. At the start of its history, it presents a common pattern: a lot of nonces are close to 0. This can be explained by a simple strategy that consists of incrementing the nonce for each hash. As hashrate was very low in Bitcoin’s early history, mining was performed using CPUs only and a winning hash was commonly found before going over all the possible nonce values. Sergio Lerner exploited this fact to give the most serious attempt at identifying Satoshi’s coins.

After GPUs were introduced, the nonce space became seemingly random. But around height 400,000, a new pattern, yet unexplained, emerged leaving thin stripes of nonce values that are picked less frequently by miners.

BitMEX research wrote extensively about this pattern but found no clear explanation for it.

Looking at a histogram of Bitcoin block’s nonces (over the course of its entire history) clearly highlights that pattern, as well as the prominence of low nonces.

The red line is the expected value assuming a uniform distribution

For even more granular analysis, one can look at the distribution of bits. The nonce field in Bitcoin is comprised of 4 bytes or 32 bits. An analysis of the average value of each of the 32 bits of the nonce shows some interesting patterns:

The darker a cell, the more often the nonce bit is set to 1 instead of 0; X-axis is time in blocks

At the beginning of Bitcoin’s history, the higher bits were often set to 0 as miners’ nonce-picking strategy was to simply increment it. The lower byte (the last 8 bits at the bottom of the chart) seem to have always been used with some sort of patterns but only recently have changes in patterns been observed in the lower bits. 


One of the most interesting assets to apply nonce analysis to is Monero. It’s also one of the most analyzed, with various articles and tools looking into it.

Monero upgrades by hard-fork every 6 months and some of the past few upgrades have been accompanied by tweaks to the proof of work algorithm in order to circumvent dedicated mining hardware, but not general-purpose hardware. The first of those hard forks was somewhat contentious as it resulted in several forked projects/assets.

We can therefore study the impact of these changes on the nonce distribution. 

At first glance, we can notice several interesting patterns, but things get more interesting when we overlay network difficulty and the scheduled hard forks (that tweaked the PoW algorithm) on top of this chart.

Red lines indicate the timing of hard forks whereas black lines represent network difficulty

We can see that all 3 PoW upgrades lead to some drop in difficulty and that 2 of them stopped pre-existing nonce patterns. Interestingly, the introduction of those same nonce patterns was also associated with a sharp rise in network difficulty.

Simply by observing these nonce distribution patterns against difficulty and PoW-adjusted forks, we can potentially see the effectiveness of the first fork in stopping the first generation of dedicated hardware. Additionally, we can see the rapidity at which some miners came back with a second generation of hardware after the second fork, which was again thwarted with a third fork. 


At first glance, Ethereum’s nonce space shows barely any nonce distribution patterns or irregularities.

Looking closer, we can see some darker horizontal lines at the bottom of the space after block number 7,000,000. And if you zoom in, you can spot slanted lines starting from the bottom of the space between numbers 2,000,000 and 4,000,000. Those are likely the signature of a simple nonce-picking strategy: starting at 0 and incrementing the nonce at each try.

A histogram of the block’s nonce shows that there’s a slight preponderance of lower value nonces over time:

However, a very interesting pattern is visible if we look at the average value of each bit of the nonce over time (note that Ethereum’s nonce is comprised of 64 bits, not 32 as in Bitcoin):

The darker a cell, the more often the nonce bit is set to 1 instead of 0; X-axis is time in blocks

Starting at around block 1,380,000 the middle bits of the nonce started to get set to 0 much more often than the other bits. Over time, other bits started having non-random uses too. What makes this interesting is that a cursory glance at the overall nonce distribution or histogram doesn’t reveal this pattern because tweaking the middle bits doesn’t visibly affect the nonce’s histogram.

Interestingly, Ethereum Classic’s nonce bit distribution shows the exact same pattern:

The darker a cell, the more often the nonce bit is set to 1 instead of 0; X-axis is time in blocks

The white vertical stripes at the top indicate some miners were incrementing the nonce from 0.

Bitmain announced the first publicly known Ethash ASIC miner in April 2018 and said first deliveries were expected in mid-July of that same year. Annotating the previous chart with both dates shows something very interesting:

Dotted red line: E3 announcement, solid red line: E3 first known deliveries

From a first glance, the average value of bit 41 for Ethereum and Ethereum classic blocks dropped around the time of the Antminer E3 announcement. Focusing on this specific bit on both Ethereum and Ethereum classic, the pattern is even more striking:

Dotted red line: E3 announcement, solid red line: E3 first known deliveries

Prior to mid-March 2018, the average value of bit 41 hovered around 0.5 (which is the expected value assuming uniform distribution as represented by the grey horizontal dashed line). However, it started to be set increasingly to 0 from that point onwards on both chains and at the same rate. Its average value then dropped drastically right at the time the first deliveries were scheduled to happen (July 16th, 2018, red solid horizontal line) but only for Ethereum. On both Ethereum and Ethereum classic, bit 41’s average value settled in mid-June 2018, one month before the first announced deliveries of E3 miners, but its value further dropped only for Ethereum.

Dotted red line: E3 announcement, solid red line: E3 first known deliveries

Looking at Ethereum’s top 5 mining pool at the time, we can see that the average value of bit 41 started dropping across all pools but that from July 16th onwards, the date of the first announced deliveries of E3 miners, its value further dropped for only 2 major pools: Sparkpool and F2Pool, both administered in China.

The Battle Continues

As ProgPow looms and Monero continues to hard-fork to try to stay ahead of ASICs, the battle against specialized hardware is likely not going away anytime soon. As the war wages on we’ll be watching closely, and continue the hunt for the signal in the nonce.

Network Data Insights

Summary Metrics

BTC rallied over the past week, with a 3.5% rise in market cap. Comparatively, ETH had a down week, with market cap dropping 2% from the previous week. 

BTC daily transaction fees are beginning to pull significantly back ahead of ETH, after ETH threatened to flip BTC fees over the last few months. BTC’s average fees grew by 42.2% week over week, while ETH’s grew by 18.4%. BTC had a daily average of over $268K fees over the last seven days, while ETH only averaged $93.5K. 

Interestingly, although BTC led ETH in most other metrics, ETH had a 4.6% increase in daily transaction count, while BTC’s daily average decreased by 0.1%. ETH’s transfers (i.e. transactions that include a monetary exchange), however, decreased by 2.9%, while BTC transfers increased by 2.2%. This suggests that Ethereum Dapp (i.e. decentralized application) usage may be increasing, since Dapps often produce non-monetary transactions.

Network Highlights

USDT ETH adjusted transfer value rose significantly over the past week, and has now taken a commanding lead over USDT Omni. As we’ve covered in past issues, Tether exists on multiple different protocols, the two biggest of which are Bitcoin based USDT OMNI and Ethereum based USDT ETH. Over the last several months, usage has been shifting from the Omni to the Ethereum based version of Tether. Notably, Tron based Tether is also reportedly on the rise

On October 25th, BTC had one of its biggest upward price movements in 2019. However, the movement was relatively quick, with the price rocketing up and then falling back down over a period of 12 hours. This led to the highest 12 hour BTC rolling return since 2017. But in terms of end of day, 24-hour change, it was the second-highest of 2019. The below chart shows the daily growth (from the previous day) of BTC price over the course of 2019, with October 25th highlighted with an orange dot.  

Although the 25th was a big day in terms of price, many other on-chain metrics did not follow suit. Adjusted transfer value only grew by 14.6% on October 25th, which is far below 2019 highs. 

Similarly, BTC active addresses (which is the unique number of addresses either sending or receiving a transaction over a 24 hour period) only grew by 9% on the 25th, which is a little below the average of 10% daily growth over the course of 2019.

Market Data Insights

Despite experiencing one of the largest 24-hour returns in the history of Bitcoin, price is up a more modest 16 percent when measured on a weekly basis. Prices continue to experience high directional correlation but wide dispersion in returns with some major assets nearly flat for the week. 

Among major assets, Bitcoin Cash SV led the market with a 48 percent return. Bitcoin Cash SV remains one of the most volatile large-capitalization assets with three-month rolling volatility running at over 100 percent annualized. We previously wrote that fork uptake (the number of native units that have moved after a fork event) is particularly low and only roughly 8 million units of Bitcoin Cash SV have been claimed post-fork. With the low claimed supply and being delisted from major trading venues, the amount of Bitcoin Cash SV available for price discovery remains low. 

The direct catalyst for the large movement in prices remains unclear, although some market participants believe that remarks from Chinese President Xi Jinping urging greater development in blockchain technologies as the cause. In support of this thesis, major China-based blockchain projects TRON, NEO, Ontology, Qtum, and others have rallied much sharper than the rest of the market. 

Although certain previous movements have shown limitations in the market microstructure of crypto markets or instances of suspected price manipulation, orderly markets were observed over the past week. Despite extremely rapid price movement, spreads between major exchanges remained small indicating that market participants have the ability to quickly transport liquidity across markets. A similar analysis performed on BitMEX’s perpetual futures contract and major markets quoted in Tether also show orderly trading. 

The large movement has meaningfully changed the distribution of Bitcoin by price at the time of last on-chain movement, a proxy for estimating each unit of Bitcoin’s cost basis. The current snapshot shows very little Bitcoin with a cost basis above $13,000. Large amounts of Bitcoin are distributed in the $2,000 to $13,000 range and nearly 4 million Bitcoin or 22 percent of total supply has a cost basis below $500. 

Here we show the change in the distribution between October 24 (immediately before the large price movement) and October 26 (immediately after). Extremely little activity was detected from holders with a cost basis above $13,000 or below $7,000 suggesting that the increase in price was not yet sufficient to incentivize these holders to sell. Instead, it is most likely Bitcoin between the $7,000 and $8,500 range was sold, although these amounts may be slightly overstated due to normal exchange hot wallet activity. A small amount of Bitcoin in the $9,000 to $12,000 range did show some on-chain movement, however. 

CM Bletchley Indexes (CMBI) Insights

After the market activity in the second half of last week, all Bletchley Indexes performed strongly, returning between 9% and 13%. Not many assets performed as well as Bitcoin over the weekend, which lead to the Bletchley 10 and Bletchley Total performing best week-on-week. This is further highlighted by the underperformance of all indexes in comparison to Bitcoin. 

Interestingly, the end of week performance figures do not tell the full picture of what occurred across markets during the week. As demonstrated below, all indexes were down close to 10% mid week, with Bitcoin down more than any index. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • 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]

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

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 22

Weekly Feature

Bitfinex Market Share is Declining

Bitfinex, the controversial Hong Kong based exchange at the heart of ongoing investigations against Tether, has been one of the biggest cryptocurrency exchanges in the world since its launch in 2012. But recently there are signs that its market share may finally be slipping. 

Since the beginning of September, Bitfinex’s BTC-USD market share has been decreasing, while Luxembourg based exchange Bitstamp’s market share has grown. The below chart shows the market share of total daily BTC-USD trading volume (smoothed out using a 7 day moving average) for the following exchanges: Bitfinex, Bitstamp, Bittrex, CEX.IO, Coinbase, Gemini, itBit, Kraken, and Liquid. 

Although it may be tempting to think that Bitfinex’s volume decline is related to the recent Hong Kong protests, the most likely explanation is a combination of increased regulatory scrutiny and decreased fees. 

In April, the New York Office of the Attorney General’s (NYAG) announced it was beginning an investigation for alleged fraud against Bitfinex’s parent company, iFinex, which owns both Bitfinex and the Tether stablecoin. iFinex reportedly lost $850 million in a deal gone bad and then borrowed “at least $700 million” from the reserves that back Tether to cover the losses. After Bitfinex challenged the investigation, on August 19th the New York Supreme Court ruled that the NYAG has jurisdiction over Bitfinex, allowing the NYAG to move forward with the investigation.

Furthermore, in early October, several plaintiffs opened a new class action lawsuit against Bitfinex for price manipulation related to Tether, alleging over $1 trillion in damages.

Concurrently, at the end of July, Bitstamp announced they would be implementing lower trading fees. Initially, they planned to put the new fee schedule into effect on August 1st, but ended up delaying the launch until August 20th. Bitstamp’s new fee schedule lowered fees for high-volume customers, making their platform more attractive for institutional grade investors:

Notably, Bitstamp’s new fees are significantly less than Bitfinex’s taker fees for customers who have at least $1 million worth of trades or more over the previous 30 days. Additionally, on October 7th Coinbase started implementing higher fees for its pro users, although we have not yet observed a significant decrease in Coinbase’s BTC-USD volume market share. 

The following are Bitfinex’s current fees:

Although the Hong Kong protests began in March, Bitfinex had substantially more trading volume than Bitstamp from April through July. Bitstamp started catching up in late August, when the fee change went into effect, and the NY Supreme Court ruled favorably for the NYAG’s investigation against iFinex. By September, Bitstamp had passed Bitfinex in terms of total trading volume per month.  

Compounding iFinex’s problems, usage of the LEO token (which was created by iFinex and supported by Bitfinex) has mostly stalled since its launch in June. The following chart shows the number of unique addresses that hold any balance of LEO (the following stats are all for usage of Ethereum based LEO, as the EOS version has gotten very little usage). As of October 17th, there were only 1,948 addresses that held any LEO.

The below chart shows the number of LEO addresses that hold  balance of at least X amount of USD, where X ranges from $1 to $10,000,000. At time of publication, a little over 500 addresses hold at least $1,000 worth of LEO, and 1,182 addresses hold at least $100.

Furthermore, LEO’s active addresses have been steadily declining. We define “active addresses” as the count of unique addresses that either send or receive a transaction over the course of a day. On October 17th, LEO had 17 active addresses.

Network Data Insights

Summary Metrics

By most measures, the major crypto networks declined slightly over the past week. BTC and ETH market caps were down 3% and 3.9%, respectively, week over week. XRP, however, had a relatively good week, with a 6.4% increase in market cap.

XRP and LTC both had relatively large gains in adjusted transfer value compared to both BTC and ETH. ETH had a particularly rough week, dropping by 4.4% in adjusted transfer value and 7% in fees. This is the third week in a row that ETH fees have decreased, after showing strong increases through much of September. 

Network Highlights

BTC continues to dominate in terms of daily transfer value. The below chart shows the market share for adjusted transfer value between BTC, ETH, LTC, BCH, and XRP, smoothed using a 7 day moving average. As of October 20th, BTC has a little over 79% of transfer value market share, compared to about 11%, 5%, 4% and 1% for ETH, XRP, BCH, and LTC, respectively.

On October 19th, the Bitcoin network mined its 600,000th block. Later that day, the BTC supply reached 18,000,000 (technically the supply did not reach 18,000,000 at exactly the 600,000th block because historically, some miners did not claim their block rewards). As of end of day October 20th, BTC had a supply of 18,003,467.

Market Data Insights

Markets over the past week saw moderate dispersion in returns with many assets experiencing small gains and a slightly larger number of assets experiencing small losses. Among the large capitalization assets, XRP (+6%), Monero (+6%), and Bitcoin Cash SV (+10%) are notable outperformers. 

Despite a sharp decline in Bitcoin prices roughly one month ago, volatility measured on a rolling three month basis is again approaching three year lows. Prices staying range bound previously around $10,000 and now at $8,000 have caused volatility to decline to 59%. Previous recent lows in volatility occurred in November 2018 and March 2019 when prices were range bound around the $6,500 level and $3,500 level, respectively. In both those instances, volatility declined below 50% and a sharp change in price followed. 

Lowered volatility will incentivize traders to build up positions with increased leverage around the current price. The longer volatility remains muted, the more likely a violent reaction in price will occur. Should prices remain range bound at around $8,000 for another month or so, volatility will fall to levels where previous sharp changes in price occurred. 

Meanwhile, volatility for some other assets are approaching all-time lows and are now matching Bitcoin’s volatility levels, indicating that the irrational exuberance for these assets has faded.

CM Bletchley Indexes (CMBI) Insights

CMBI Design Considerations

When considering the pricing methodologies of indexes two of the primary design considerations include:

  1. Timeliness of data – Proponents of timeliness often argue that ‘markets are markets’ and the most recently available data should be reflected. The indexes’ level should reflect the price that can be obtained by trading each one of its constituents in the market at any given point in time. 
  2. Manipulation Resistance – The other side of the argument is that taking the most recently available trade data can lead to easily manipulatable index levels, particularly in thinly traded markets. Thus, ingesting more data can add robustness to a reference price, be it more breadth (increased number of exchanges upon which price is ingested) or more depth (taking more observations than just the most recent trades e.g. within a ‘x minute’ time window). Proponents of reliability often argue that a more robust price should be used to prevent manipulation.

This is one of the key design considerations of the CMBI index suite that is currently being constructed behind the scenes at Coin Metrics. It is very easy to believe that in the short term a derivatives crypto asset product could track an index, either single asset or multi asset. But trade-offs between timeliness and reliability get particularly hairy when the derivative product’s volume is greater than the underlying asset. 

To address much of this, CMBI design has leveraged both Coin Metrics’ Reference Rates and Real Time Reference Rates. CM Reference Rates are designed to be robust and not easily susceptible to manipulation, achieved through the use of a time-weighted volume-weighted median price, whilst CM Real-Time Reference Rates are designed to be timely, achieved through the use of the most recent trade data available from selected markets. When implemented hand in hand for index construction can overcome many of the pitfalls of each design. 

Bletchley Weekly Performance

Most of the Bletchley Indexes started the week with declines before recovering much of the losses over the weekend. Large cap assets performed best with the Bletchley 10 finishing the week flat, despite both Ethereum and Bitcoin finishing the week with losses. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • 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]

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

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.

CM Network Data Pro Daily Macro Version 4.4 Release and Community Updates

Coin Metrics is pleased to announce the release version 4.4 of CM Network Data Pro Daily Macro (End of Day) product. Several of the updates impact our Community data as well. 

These updates include revisions and enhancements to the following Pro and Community metrics and assets:

  • ERC-20 Supply Calculation Enhancements
    • We have updated our handling of complex minting/burning schemes to better reflect the exact supply of ERC-20 tokens
  • Recomputation of ROI30d, ROI1y and NVTAdj90 metrics to reflect previous updates to the PriceUSD metric
  • Bitcoin Gold metrics computation has resumed
  • ETH / ETC Contract count enhancements (applies to Pro only)

If you have any questions, please reach out to [email protected]

Coin Metrics’ State of the Network: Issue 21

Weekly Feature

BTC Is Close to $1B of All-time Fees, But Fee Growth is Slowing

BTC is close to eclipsing $1 billion of cumulative, all-time transaction fees. As of October 13th, there have been $996,458,718 worth of fees paid on the BTC network.

CoincidentallyBTC is also close to reaching another milestone: $15 billion worth of all-time miner revenue (also known as “thermocap”). “Miner revenue” includes block rewards (i.e. newly issued tokens) and transaction fees, both of which are typically paid to miners. 

However, since early 2018, BTC fees have been accounting for less and less of cumulative miner revenue. On January 31st, 2018, BTC fees accounted for about 12% of the total miner revenue (block rewards account for the remaining 88%). As of October 13th, 2019, BTC’s cumulative fees were only 6.6% of total miner revenue. This means that since February 2018, BTC cumulative fees have not been growing as fast as cumulative block rewards. 

BTC median fees shot up to nearly $34 in late 2017, compared to a peak of only about $3 for ETH. BTC median fees have since fallen and have remained at less than $4 since February, 2018. This extreme difference in median fees is one of the main reasons for the decline in cumulative fees’ share of total miner revenue. 

Comparatively, as of October 13th, cumulative fees make up about 3.6% of ETH’s cumulative miner revenue. But, compared to BTC, the ratio has stayed relatively flat since the start of 2018. 

This is mostly due to the fact that ETH’s fees have grown much faster than BTC’s over the period. BTC’s cumulative fees have grown about 74% since January 1st 2018, while ETH’s have grown close to 400%.

BTC and ETH’s market cap to thermocap ratios (“thermocap” is another term for cumulative miner revenue) also flipped in early 2018. The market cap to thermocap ratio can potentially serve as a (rough) proxy of a crypto asset’s valuation to revenue, where the market cap represents an approximate valuation and thermocap represents the total revenue generated by the network. As of October 13th, BTC’s market cap to thermocap ratio is 10.3 compared to 3.2 for ETH. Interestingly, the S&P price to sales ratio is currently about 2.18.

Network Data Insights

Summary Metrics

Market cap was up for all five major crypto assets over the past week. For the fifth week in a row, ETH’s market cap outperformed BTC’s. ETH’s market cap was up 4.6% for the week (and was up 1% last week), while BTC’s market cap grew by 2% (compared to a 3.1% loss last week). 

Hash rate, however, grew more for BTC than ETH. BTC’s approximate hash rate was up 3.5% over the last week while ETH’s dropped by 0.5%. This is the second week in a row that BTC’s hash rate has outgrown ETH’s hash rate. 

Network Highlights

The combined total adjusted transfer value of the seven stablecoins we track (DAI, GUSD, PAX, USDC, TUSD, USDT, and USDT_ETH) approached all-time highs at the end of September, hitting $1,546,234,810 on September 24th. However, the total has since dropped, averaging about $618,000,000 a day over the first 13 days of October. The below chart shows the seven day moving average of the combined total.

A majority of the total stablecoin adjusted transfer value comes from Tether, which is still the biggest stablecoin by most measures. The activity on Tether continues to shift from USDT (which is the original, OMNI based version) to USDT_ETH (which is the newer, Ethereum based version of Tether). 

Market Data Insights

Over the past month, most major assets experienced sharp declines. Bitcoin is down 20 percent over this time period driven primarily by a concentrated movement from $10,000 to $8,000 on September 24. Notice the stair step-like pattern for Bitcoin prices reflecting long periods of muted price volatility interspersed with short periods of large and concentrated price movement. 

Ethereum is flat over this time period but significantly outperformed Bitcoin, perhaps because of an emerging recognition that demand for Ethereum’s block space represented by fees is growing (and momentarily eclipsed Bitcoin’s daily fees). Both XRP and Stellar have experienced modest single-digit gains for this month. Most other major assets are down, but less than Bitcoin. 

Notably, there was no significant impact on prices despite major developments in crypto markets over the past week — a class action lawsuit was filed against Tether and Bitfinex, the SEC formally rejected Bitwise’s ETF and filed an emergency action against Telegram’s token offering, and multiple members of Libra Association dropped out due to regulatory pressure. 

The fact that prices for smaller assets remained resilient (relative to Bitcoin) in the face of these developments suggests that increased regulatory scrutiny has already been priced into the market. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • 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.
  • The CM Bletchley Index (CMBI) Insights section will return next week.

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

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

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 20

Weekly Feature

Tezos Market Cap Bounced Back in 2019, But Still Has Little Usage

After a controversial start, Tezos (XTZ) has bounced back in 2019. Since the start of 2019, XTZ’s market cap has grown almost in lock step by BTC’s. As of October 6th, XTZ’s market cap has grown by 119%, while BTC’s has grown by 112%.

XTZ’s realized market capitalization grew over the course of 2019. 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. Realized cap can be thought of as a measure of the average cost basis of asset holders (cost basis is basically the total amount originally invested). Check out State of the Network Issue 14 for a more detailed explanation of realized cap. 

XTZ’s realized cap has grown by over 10% since the beginning of 2019, while BTC’s grew by over 28%. ETH, ADA, DCR, and ZEC’s realized caps have all declined over the course of 2019. 

Even though XTZ’s market cap has been growing, its network activity has not been growing at a similar rate. The below chart shows XTZ’s daily active addresses. We define “active addresses” as the unique number of addresses that either sent or received a ledger change over the course of a day. Users may own multiple addresses, so active addresses serves as the upper bound for potential amount of daily unique users on a network. 

Over the last 30 days, XTZ has had an average of 4,803 active addresses, compared to 286,467 and 709,569 daily active addresses for ETH and BTC, respectively.

Additionally, the following chart shows XTZ’s daily transaction count and daily transfer count. We define a “transfer” as any transaction that moves some units of XTZ between two addresses. “Transactions” include all types of ledger amending actions, including contract calls and other non-monetary operations. 

XTZ’s transaction count is significantly higher than its transfer count, which signifies that a majority of Tezos operations are non-monetary. This ratio differs from blockchain to blockchain; over the last 30 days, ETH has about 2.3x as many transactions as transfers, while BTC has had over 2.15x transfers as transactions. 

Digging deeper, the below chart shows XTZ’s transaction count broken down by operation type. A majority of XTZ transactions are endorsements. Endorsements are part of the Tezos baking process, and occur every time a block is baked. Tezos also has a significant amount of account activations, delegations, originations, and reveals, which are all part of the Tezos baking and account creation processes. 

Filtering out endorsements, account activations, delegations, originations, and reveals, we are left with all other transactions, which can be seen as the “transaction” line in the below chart (which uses a log scale). 

Over 95% of the remaining transactions are transfers (i.e. 95% of the remaining transactions that are not endorsements, account activations, delegations, originations, or reveals are transfers). This means that there are only a small amount of other types of non-monetary XTZ transactions, such as non-monetary contract calls. 

In fact, XTZ has a small number of contracts overall. As of October 6th, XTZ only has 108 contracts that contain code. This compares to over 11,000,000 contracts with code on Ethereum.

Although Tezos’ market cap has been showing signs of growth, it still has a long way to go in terms of gaining real adoption.

Network Data Insights

Summary Metrics

BTC’s market cap and realized cap continued to slide over the past week, dropping by 3.1% and 0.4%, respectively. ETH’s market cap, on the other hand, grew a little over the last week, with a 1% growth in market cap and 0.7% growth in realized cap. ETH’s active addresses also surged upwards, growing by over 15.5%.

Adjusted transfer value for both BTC and ETH also dropped significantly over the past week, both down by over 28%. LTC and BCH’s adjusted transfer value also had a bad week, each dropping by over 47%. XRP, however, escaped the onslaught. XRP’s adjusted transfer value grew by 22.5% week over week. 

Network Highlights

ETH continues to challenge BTC for the daily transaction fees throne. ETH daily fees briefly passed BTC daily fees on both September 28th and 29th, by a margin of about $20,000 on both occasions. However BTC has once again taken the lead since then. On October 6th, BTC had over $128,000 daily fees, compared to a little over $66,000 for ETH.

BTC’s total fees (i.e. all-time cumulative fees) are approaching $1,000,000,000. As of October 6th, BTC has $990,237,685 of total fees. BTC’s total fees should pass the billion dollar milestone on approximately October 14th. Coincidentally, BTC all-time miner revenue (which includes fees and block rewards) should reach $15 billion around approximately the same time, give or take a day or two.

Market Data Insights

Tether on Ethereum Almost Exceeding Tether on Omni 

The long-term trend of Tether supply shifting from the Omni protocol to a ERC-20 token on the Ethereum blockchain continues. Coin Metrics has previously written about the current state of stablecoins and Tether supply

Although Tether has not publicly disclosed why they are swapping supply issued on Omni to Ethereum, market forces indicate that this trend should continue. Possible explanations include a concerted effort to diversify away from a single, largely unmaintained protocol in Omni and taking advantage of the robust wallet, tools, and infrastructure supporting ERC-20 tokens. As Tether is primarily used for active traders engaged in arbitrage, transacting Tether through Ethereum brings many advantages, including faster time to first confirmation, faster exchange withdrawal and deposit times, and lower fees. On the margin, increased issuance of Tether on Ethereum should be supportive of higher transaction counts and fees, while reducing these figures on Bitcoin. 

The current Tether supply is 4.1 billion units, consisting of 2.15 billion on Omni and 1.96 billion on Ethereum. There are also minuscule amounts of Tether issued on other blockchains, including 0.14 billion on Tron and 0.005 billion on EOS. The latest significant change in supply occurred on September 16 when the Tether Treasury burned 400 million units on Omni and issued the same amount on Ethereum with a short lag. Over the past several days, small amounts of Tether have been printed on Ethereum. 

Declines in Tether Supply Provide More Observations to Study Relationship with Bitcoin Price

Although the specific mechanism behind why additional Tether is printed is unknown, several explanations have been put forth. One set of explanations, advocated by representatives of Tether, is that Tether will occasionally print Tether to fulfill future purchase obligations by traders. Tether is printed in large batches purely as a means of convenience. Another set of explanations are conspiratorial in nature and suggest that Tether and its affiliated entities may engage in price manipulation. The lack of transparency drives these explanations. 

Regardless of which explanation is closest to the truth, both sets of explanations could suggest a relationship between Tether printing and future price movements. There is also a second order effect in that this narrative is widely known and followed, to the extent that this belief could drive trader behavior and make this relationship self-fulfilling. 

Recent changes in Tether supply provide more observations to study this relationship. In August, the Tether Treasury burned 300 million Tether on Omni, resulting in only the second time in history that Tether supply has decreased. Below we plot the one-month change in Bitcoin’s price in blue with the one-month change Tether supply in red. Recent price movements have revealed that Bitcoin price declined following the decline in Tether supply (with a short lag) as it did during a similar situation in late 2018. 

The relationship between Tether supply and Bitcoin price deserves continued study. Promising areas of research include analysis of the exact timing of transactions between the Tether Treasury and exchanges, controlling for Tether supply that remains in the Tether Treasury or is otherwise quarantined, and exploring the relationship at different lags. Despite the increased regulatory scrutiny and the mounting lawsuits against Tether, it still remains a critically important element in crypto markets and its systemic importance continues to grow. The market share of Tether trading volume has recently reached nearly 75 percent on Binance and shows long-term growth. 

CM Bletchley Indexes (CMBI) Insights

After last week’s less than impressive market performance (~20% fall), mid and small cap assets rebounded the most, returning over 4% for the week as Bitcoin continued to dip (2.5%) and Ether closed flat.

At the end of the third quarter it is amazing to look at the distribution of returns across all assets over 2019. For a market that spent the majority of 2018 highly correlated on both the up side and the down side, the significant differences in return profiles (as viewed below) puts into perspective the strength displayed by large cap assets.

With Bitcoin being one of the top performers, it’s strength can further be demonstrated by looking at the returns of Bletchley Indexes in BTC terms. Interestingly, as we have reported over much of September and late August, mid cap and small cap assets have shown some recent resilience which can be seen below too.

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • 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]

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

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.

CM Network Data Pro New Releases: Block-by-Block (Version 2.0) and Daily Macro (Version 4.3)

Coin Metrics is pleased to announce the version 2.0 release of our CM Network Data Pro Block-by-Block (Real-Time) and version 4.3 release of Daily Macro (End of Day).

Version 2.0 of Block-by-Block features an upgrade to our pricing data from CM Hourly Reference Rates to CM Real-Time Reference Rates (Beta). This means that all USD-denominated metrics are now calculated at the 1-second price closest to the miner-stamped block time.

Version 4.3 of Daily Macro features a number of metric additions including

  • Active, supply, ever
  • Uncle block metrics
  • Further transaction and contract breakdowns (ERC-20 and ERC-71) 

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

Coin Metrics’ State of the Network: Issue 19

A double header this week: This week’s issue has two weekly features. The first is about the recent market sell-off, and the second is about the recent BTC hash rate dip.

Weekly Feature # 1

Belief in Bull Market Remains Unchanged Despite Large Market Sell-Off

Crypto markets were hit hard last week. Bitcoin experienced the largest single-day decline in price in 2019 and reached lows not seen since mid-June. All major assets are down roughly 20 percent or more with no clear catalyst. 

Analysis of on-chain activity indicates that selling pressure during the market sell-off came primarily from short-term traders that last acquired Bitcoin at prices between $10,000 and $12,000. Comparisons to previous market cycles indicate that drawdowns of this magnitude are rare but to be expected. Although several narratives have been proposed as to the cause of this market sell-off, the mean-reverting nature of volatility combined with the increased use of derivatives appear to be the primary factor. 

Selling Pressure Originated from Short-Term Traders that Acquired Bitcoin at Prices Between $10,000 and $12,000 

Coin Metrics has previously introduced realized capitalization as an alternative to market capitalization. Instead of valuing each coin at the current market price (as market capitalization does), realized capitalization values each coin at the price of the last on-chain movement (e.g. if a coin was last moved in 2017 when BTC price was for $2,500, that particular coin would be priced at $2,500 instead of the current market price). 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).

Although we commonly use realized capitalization as a summary metric, an analysis of its composition reveals important information about the psychology of current owners. Here we present the current state of Bitcoin’s UTXO set, represented by the number of Bitcoin that last moved at a given price. For instance, approximately 4 million Bitcoin last moved when prices were between $0 and $500. And there are 1.2 million Bitcoin that last moved near the current price of $8,065. 

Assuming that the price of the last on-chain movement is the cost basis of each Bitcoin, 63% of Bitcoin now have unrealized gains while 37 percent have unrealized losses. Most of the Bitcoin holders are unequally distributed at prices between $0 and $13,000. There are few Bitcoin with a cost basis above $13,000 as these holders have long since capitulated at lower prices and the remaining have likely converted into long-term, jaded holders. 

Here we show the change in the number of Bitcoin in each cost basis bin between September 20, 2019 (the day before the start of the sell-off when Bitcoin was at $10,000) and today. An analysis of the change between the two dates reveals important insights into the psychology of various Bitcoin trader profiles. 

One cohort of traders are owners with a cost basis above $13,000. Prior to the market sell-off, roughly 720,000 Bitcoin belonged to this cohort. Analysis of on-chain activity indicates that virtually all Bitcoin owned by this cohort remained dormant during the sell-off, suggesting that capitulation among these traders is complete. Only 4,140 of the 720,000 Bitcoin moved over the past nine days and did not contribute meaningfully to selling pressure. These traders have apparently become numb to a 20 percent drop in prices and are now firmly long-term holders. 

Another cohort of traders are owners that acquired Bitcoin at prices between $10,000 and $13,000. This cohort represent fresh capital that recently bought in during the minor euphoria over the summer when prices reached new highs of this market cycle. Analysis of on-chain activity indicates that the majority of the selling pressure came from this cohort of traders and suggest that these short-term holders were protecting their positions by taking a moderate loss. A particularly large rotation was observed from the $10,000 cost basis bin to the $8,000 cost basis bin over the past nine days — roughly 500,000 Bitcoin with a cost basis of $10,000 was sold over the past nine days and the $8,000 cost basis bin increased by 750,000 Bitcoin. 

Finally, we have a third cohort of traders that acquired Bitcoin at prices below $8,000. These owners represent long-term holders with a strong long-term conviction in Bitcoin. Approximately 11.46 million Bitcoin belong to this cohort. Despite the extreme market movement, these holders have remained resolute in their market views — only 150,000 of the 11.46 million Bitcoin were seen to have moved on-chain. Profit taking or panic selling was limited among these holders. This behavior indicates that for the majority of Bitcoin holders, the market view of Bitcoin being in a bull market remains unchanged. 

Previous market cycles indicate that drawdowns of a magnitude similar to what we have observed since the market peaked early this summer are rare but not unprecedented. During the run-up to the 2017 bubble, Bitcoin price corrected by nearly 40 percent from peak in two circumstances, once in July 2017 and another in September 2017. If the $13,000 level is assumed to be a local peak, the current drawdown is also nearly 40 percent — the edge of historical norms. 

Given the activity seen from the current cohorts of traders, belief in Bitcoin’s bull market remains unchanged — although this narrative could be challenged if price continues to decline or we start to see on-chain evidence of panic selling from long-term holders. 

Mean-Reverting Nature of Volatility and Use of Derivatives Likely the Cause of Large Market Movement

The market environment immediately prior to last week were gradually building towards the conditions necessary for a large market movement. For roughly two months, Bitcoin traded within a short price range of between $9,500 to $11,000 causing short-term measures of realized volatility to drop to historical lows. Measured on a one-month rolling basis, annualized volatility of Bitcoin’s price reached 44 percent, well below its historical average and bringing it inline with the volatilities of traditional financial assets. Since the beginning of 2017, volatility has only been this low or lower only 3.5 percent of the time. 

Here we can separate one-month rolling volatility into two distinct regimes, one prior to January 2017 and one after. Prior to January 2017, volatility tended to be low and stay low. After January 2017, which coincides with the start of the modern volatility era in which derivatives now have outsized impact, the lower bound of volatility is elevated and reverts rapidly when it reaches low levels. 

Low periods of volatility are typically followed by high periods of volatility because under an environment of low volatility, traders extrapolate this state to the future and take on more risk in the form of borrowing or the use of leveraged instruments. As prices begin to move, margin calls and forced liquidations tend to reinforce the direction of the initial move, exaggerating the magnitude of the move and normalizing the level of volatility. According to an analysis by Skew, forced liquidations of long positions on BitMEX’s XBTUSD contract alone totaled roughly $700 million over the past week causing the basis relative to spot markets to momentarily reach negative 3 percent. The same phenomenon works in reverse — when volatility is high, risk taking is reduced, eliminating this feedback loop. Thus, volatility exhibits mean-reverting behavior.

Combined with this, there is a broader trend of increased use of derivatives such that certain exchanges such as BitMEX and CME are now critical trading venues where much of the price discovery takes place. BitMEX in particular regularly has notional trading volumes up to one magnitude higher than the largest spot exchanges. New platforms like Binance and FTX have also recently launched and have attracted meaningful volume. 

These trends indicate that the phenomenon of large, concentrated price movements should continue. It also suggests that modeling volatility, the prices at which leverage is applied and how much leverage is applied, along with their implied liquidation prices, are critical to understanding and predicting price movements. 

Market Microstructure Remains Underdeveloped 

A close analysis of trading activity on a selection of major Bitcoin-U.S. Dollar and Bitcoin-Tether markets was conducted. Although there are some questionable trades, such as two sells of 100 Bitcoin each on Bitfinex’s market immediately prior to the large decline in prices, there were no clear signs of market manipulation in this case (unlike previous incidents in which constituent markets for BitMEX’s Bitcoin index were specifically targeted). Major markets traded with a close spread immediately prior and during the decline. Immediately after the decline, however, several spot markets started to trade with a large spread between each other. Coinbase, in particular, traded as high as $9,000 afterwards when other markets were around $8,300. It is unknown why such a large spread was observed for a sustained period of time.  

Tether markets also show some questionable trades, with elevated trading activity from HitBTC’s and LBank’s markets, but the quality and reliability of their reported trading data is low. Tether markets experienced lows of nearly $7,500, nearly $500 lower than the lows reached in Bitcoin-U.S. Dollar markets. Binance’s market, perhaps the largest and most efficient market in this set, reached a low of $7,800 during this time. 

These irregularities show that the current state of crypto’s market microstructure remains underdeveloped. Under times of market stress, Tether’s peg with the U.S. Dollar can break, large spreads can still exist between major markets, exchange trading systems and matching engines can become unstable, and arbitrageurs and market makers can do a better job at rapidly identifying arbitrage opportunities and transporting liquidity across exchanges. 

Until the quality of price discovery can be improved upon, regulators will still likely have unresolved questions regarding the susceptibility of crypto markets to manipulation, and approval of any crypto-related ETFs are unlikely to be approved. 

Weekly Feature #2

An Investigation Into The Recent BTC Hash Rate Dip

On the 24th of September, the east coast of the US woke up to twitter erupting with a plethora of pundits commenting on BTC’s drop in hash rate on 23rd of September. On face value, the metric indicated that hash rate had come crashing down 32% from 98 to 67 exahashes per second. 

Needless to say the community scrambled to find a narrative for the drop in hashrate which included some of the following:

However, what lacked across many channels was discussion about the construction of the metric itself and the source of the data anomaly. It turns out that the way that hash rate is measured (or as we explain below, the way that hash rate is estimated) played a big role in the apparent hash rate drop. Below we discuss how data can help provide ground truths and insight into the health of a network such as Bitcoin.

What is Hash Rate and How is it Calculated?

Without connecting to all mining firms and mining pool operations directly it is impossible to determine the exact hash rate of the network. Thus, many data providers, including Coin Metrics, estimate the hash rate by looking at the mining difficulty on any given day and the number of blocks produced in that 24 hour period. 

To approximate hash rate, we use the following formula:

For example, BTC difficulty adjusts to target generation of 1 block every 10 minutes, which is equal to 144 blocks every 24 hours. However, there’s a degree of randomness involved in block production which means that it is impossible to predict exactly when the next block is mined, and therefore it is also impossible to predict the exact amount of blocks expected in a 24 hour period.

A Brief Refresher on Mining Randomness

Miners compete to find a random nonce that, when hashed with the remaining block data, produces a hash whose numerical value is lower than a protocol defined target (19 leading zeros for BTC). Implicitly, this process implies a high degree of randomness that should follow a Poisson distribution over time, thus PoW followers should expect variations in the timing of block production where the probability that a block does not arrive in x time period is:

Hash Rate “Drop” on the 23rd of September

Understanding the randomness of block generation, we can investigate what actually occurred that day. Here is the fact; 114 blocks were produced between the 22nd of September midnight UTC and the 23rd of September Midnight UTC, and the Bitcoin network expected there to be 144 produced (i.e. one block every 10 minutes). The probability of this happening is low (0.56%) but not out of the realm of possibility. 

This was largely due to 3 blocks that took over 50 minutes to be produced, whose impact can be seen by the 26 hour blip in the orange 144-block moving average line below. 

Additionally, yesterday (30 Sept) there was a Bitcoin block that took 119 minutes to produce (odds of this are 0.00068%)! This was followed by a block that took 52 seconds. Similarly this has lead to a decrease in implied hash rate, but the overall impact seems to have not been as drastic due to the distribution of other block production times throughout the day. 

Impact to Industry Hash Rate Calculations

As discussed above, hash rate can only be estimated by the rate at which blocks are produced. As such, hash rate values printed once daily with a 24 look back (the industry standard) fell noticeably given the slow block arrivals. These types of metrics can be misleading during probabilistically low events as demonstrated last week.

This principle applies more broadly to data and is commonly referred to as the ‘map’ versus ‘territory’ issue, where ‘the map of reality is not reality’. This applies to many of the daily crypto metrics that enthusiasts, traders and asset managers track – they are useful tools to provide insight but require knowledge of a metric’s weaknesses as well as strengths and where possible additional context to truly understand what is happening on the network (especially during the 0.56% occurrences). To this extent, Coin Metrics is striving to provide more context than just data through an end to end data solution that includes market data, network data, indexes, alternative data (twitter sentiment) and research. 

What Coin Metrics is Doing About This 

This was one of the primary motivations for Coin Metrics to create a suit of Real Time Network Data metrics. Real time data helps understand the health of a network and provides more data points to inform the market. Examples in relation to the hash rate drop recently include:

  • Real time network data analysis of block intervals (as shown above) would indicate that the determination of the backwards looking hash rate metric would print a decrease.
  • Rather than speculating on the cause of the drop in hash rate for the 24 hour period after the midnight UTC metric print, Coin Metrics was witnessing the recovery of implied hash rate throughout the day, surpassing 80 exahashes by midday EST. Further, as evidenced by the red lines below, it was coincidental that the previous end of the day print was at the daily high and the 67 exahash print was at the daily low.

CM Network Data Pro Real-Time Block-by-Block 12hr Implied Hash Rate and the 48hr Implied Hash Rate

As hash rate is sensitive to the randomness of block generation, these new metrics can act to improve the robustness of the current hash rate metrics used by the majority of the market.

As expected:

  • The 12hr implied hash rate is even more sensitive than the 24hr implied hash rate and can provide earlier indication that average block generation has reduced on the network.
  • The 48hr implied hash rate takes a bigger sample of data and is thus less sensitive to abnormally slow or high block production, providing a more robust view of hash rate by cutting out some noise.

In summary the ‘hash rate flash crash’ of last week deserved more context and investigation than it received. The cause of the perceived drop in hash rate itself can be explained by a reasonable and innocuous increase in the time to generate blocks (which is a random process) over a 24 hour period. Since determination of true hashrate cannot be done without connecting to every miner, the industry standard is to derive an implied hashrate using a 24 hour lookback window. However, as discussed above, this approach does have its limitations and through applying various time windows you can generate a more informed perspective of hash rate health.

At Coin Metrics we are striving to build the required tools to more accurately assess, monitor, predict and create actionable insights off of in our mission to educate the masses on the still nascent crypto asset market. Hopefully this leads to less speculation about events like this and more informed conversations across the industry.

Network Data Insights

Summary Metrics

After a strong run during mid-September, the major crypto networks were down this past week. All five of the largest assets lost over 13% of market cap week over week, with BTC and ETH down 16.4% and 15.5%, respectively. All five major assets also declined in terms of realized market cap, with BCH taking the biggest loss of 1.8%.

Fees and mining revenue are also down significantly. BTC and ETH daily fees are down 11% and 8.1%, respectively. Fees on XRP, LTC, and BCH fell even further, and are all down by over 25%. BTC still leads fees in total fees seven day average, but not by much. Over the past week, BTC had an average of $274,000 of daily fees, which ETH had an average of $233,700.

Network Highlights

ZCash recently passed the $1B cumulative miner revenue figure (this doesn’t take into account the founders reward). Only 5 assets are part of the >$1B cumulative miner revenue club. However, ZCash is the only asset in that club whose market cap and realized cap are both lower than its cumulative miner revenue.

ETH gas usage continues to hover near all-time highs. Over 61B gas (daily total) was used on both September 28th and September 29th.

CM Bletchley Indexes (CMBI) Insights

Having recently experienced the lowering of correlation across the market, this week we experienced a significant market wide move, leading all Bletchley Indexes to fall by ~20%. The market wide nature of the move can be seen when analysing the returns of indexes in terms of Bitcoin value, where we can see that the move relatively evenly impacted large cap, medium cap and small cap assets. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • 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]

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

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.