Coin Metrics’ State of the Network: Issue 27

Note: There is no Weekly Feature this week due to the Thanksgiving break. Regular weekly features will return in next week’s issue.

Network Data Insights

Summary Metrics

Crypto markets took a significant downturn towards the tail end of last week, with BTC price dropping to six-month lows. As a result, most major assets are down by over 10% week over week. 

The crash came after the People’s Bank of China announced that they would begin cracking down on local crypto exchanges. This appears to have offset the gains experienced in October after Xi Jinping stated that China should increase blockchain research.   

Despite the significant market cap drop, BTC realized cap only dropped by 0.3%. BTC’s market value to realized value (MVRV) ratio (calculated by dividing market cap by realized cap) dropped to 1.22 on November 24th, which is the lowest it has been since May. A low MVRV is a potential signal that market participants are minimally in profit or not in profit (if MVRV is negative), and thus the asset may be undervalued, while a high MVRV ratio may signal overvaluation (market participants are well in profit). Note that this is not investment advice.   

Although ETH also experienced a large price drop, ETH fees rose by over 20%. We explore Ethereum’s fee rise in the “Network Highlights” section below.

Network Highlights

In late 2017, CryptoKitties burst onto the scene causing ERC-721 (non-fungible token) transactions to reach over 80,000 per day. But after a brief frenzy, CryptoKitty trading died off, and ERC-721 transactions have not topped over 25,000 per day since.

Now, another Ethereum game is starting to gain on CryptoKitties. On Friday, November 22nd, Ethereum ERC-721 transaction count shot up to over 20,000 per day. On the 24th, ERC-721 transaction count reached 29,222, which is the highest single day total since early 2018. 

The spike is caused by Gods Unchained, an Ethereum based trading card game that is a competitor of the popular game Hearthstone. As we wrote in State of the Network Issue 25, Gods Unchained recently gained widespread social media attention after Hearthstone banned a popular pro player due to supporting the Hong Kong protests.

At around 4:30 AM UTC on November 22nd, Gods Unchained opened their trading card marketplace, which allowed users to begin buying, selling, and trading cards with each other. Since then there has been over 1,467 ETH (roughly $220K) worth of Gods Unchained trading volume on OpenSea.

Previously, users could only receive cards directly from Gods Unchained. These cards were usable in-game, but not tradable on the open market. Gods Unchained have been “activating” cards (i.e. turning them into tradable tokens) since early November, which led to over 3.7M ERC-721 transfers on November 17th (hundreds of transfers can be batched together in a single transaction).

CryptoKitties notoriously caused blockchain congestion, and caused ETH fees to spike. Gods Unchained appears to have caused temporary congestion on November 22nd. The blue points on the below chart each represent the gas used per individual block, for every block from November 21st through the 26th. 

There is a relatively large amount of whitespace between roughly 5:00 and 17:00 UTC on November 22nd because most blocks were close to full and therefore clustered towards the top of the chart. However, by November 23rd, things look to have mostly cleared up.

The congestion caused ETH fees to also temporarily spike on the 22nd. The following chart shows the mean fee per block over the same time period. The mean fee for some blocks reached over $30, but dropped back down to relatively normal levels by the 23rd.

Market Data Insights

Looking at the distribution of returns for Coin Metrics’ coverage universe (that consists of roughly the top 200 assets), most assets declined by between 20% and 30% over the past week. 

Diversification usually benefits a passive-held, long-only portfolio. After the bursting of the bubble in December 2017, however, Bitcoin has outperformed most smaller assets, with a few significant exceptions. 

Although nearly all crypto assets returns are normally directionally correlated with Bitcoin returns, we have previously seen high dispersion in returns, indicating that a portfolio of crypto assets still offers some limited diversification benefits. But dispersion of returns across assets has declined sharply over the past month, and each asset’s indexed price chart looks nearly identical. 

Among this sample of major assets, only Tezos has managed to secure a positive weekly return of +14%. UNUS SED LEO has also remained unusually stable with a decline of only 5%.

Recent price action has raised concerns about the continuation of the positive returns that started earlier this year. Looking at price drawdown from peak for major assets indicates that for most assets other than Bitcoin, drawdowns have returned to near all-time lows. Bitcoin’s drawdown from it’s all-time high sits at 63% and it’s drawdown from the highs we experienced during summer when Bitcoin briefly reached $13,000 s approaching 50%. 

Given the significant declines in prices, we examine current price performance in comparison to price performance coming out of other cycle bottoms. Below we annotate three cycle bottoms and tops, where each cycle bottom is a local minimum and each cycle top is a local maximum. A fourth cycle bottom is annotated and occurred on December 15, 2018 where Bitcoin prices briefly reached $3,200. 

Cycle bottoms and cycle tops were determined using subjective visual examination. This combined with the few historical instances of complete cycles suggests caution in drawing conclusions upon this data. With these caveats in mind, under the assumption that December 15, 2018 was the bottom of this cycle and that we will see a repeat of the bubble-and-crash cycles experienced before, current price performance does not seem abnormal. 

The three cycles previously identified show a pattern of lengthening where each cycle takes longer than the previous one to complete. This outcome is expected if cycles are driven by a new wave of adoption and awareness from a certain group of users, each bigger than the last. 

It also shows a pattern of less trough-to-peak price appreciation in each subsequent cycle. The total price appreciation in the first cycle is understated due to incomplete price history during the first year of Bitcoin’s existence. 

Under this lens, the local peak we experienced in the summer of this year (roughly 200 days since the cycle bottom) was abnormal as indexed prices exceeded where prices were in both the second and third cycle at similar stage during their recovery. Now, prices in this cycle have declined to a point where it is below the third cycle — consistent with historical patterns. 

CM Bletchley Indexes (CMBI) Insights

As evidenced in the market data highlights above, crypto assets had an abysmal week. The uniformity of poor performance across large-cap, mid-cap and small-cap assets is reflected in the Bletchley Indexes below, which experienced falls between 19% and 24%. 

There was a small discrepancy in small-cap assets which performed the worst against their Bitcoin pairing, evidenced by the Bletchley 40 falling 6% compared to ~1% falls for the Bletchley 10 and Bletchley 20.

In previous issues we have discussed the improving performance of mid-cap and small-cap assets against Bitcoin and the large-cap assets. Another interesting trend is the increasing correlation of mid-cap and small-cap assets with Bitcoin. 

While the Bletchley 10 is predominantly highly correlated with Bitcoin (as Bitcoin is the major constituent), earlier in the year we witnessed Bitcoin’s correlation with mid and small-cap assets reduce significantly. However, since Bitcoin has started to stagnate and even fall in price, its correlation with mid and small-cap assets has started to increase again.

Historically, long and sustained high levels of correlation have not been prevalent in the market, but rather a phenomenon that has continued since the start of the bear market in 2018. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

BLOCKTV@BLOCKTVnewsThe Indiana Jones of the cryptosphere, @khannib, Data Engineer at @coinmetrics, joins us to talk about how many Bitcoin are really in circulation. Watch the full interview at: ow.ly/5DL550xgXXQ

November 21st 201910 Retweets17 Likes

  • Coin Metrics is hiring! We recently opened up 6 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.

Announcing txstats.com

BitMEX Research and Coin Metrics are happy to announce the release of txstats.com, the successor to P2SH.info, an independent project created by Coin Metrics’ Lead Data Engineer, Antoine Le Calvez.

(Screenshot from txstats.com)

Txstats.com is a collaboration between BitMEX Research and Coin Metrics with the aim of providing in-depth, high quality and timely information about how the Bitcoin network is used.

Txstats.com provides a series of dashboards centered around a specific element of Bitcoin transactions such as:

  • P2SH transaction statistics, 
  • Multi-signature usage data,
  • SegWit transaction statistics, 
  • Lightning Network channel data,
  • OP_Return statistics, 
  • Bech32 adoption,
  • Replace by Fee usage,
  • Data related to the Block Size Debate, 
  • Fee Estimation.

BitMEX Research and Coin Metrics intend for txstats.com to be dynamic and will add more statistics to the website based on community feedback. If you would like to see a new feature added to the site please feel free to let us know by emailing us at [email protected] or by tweeting @BitMEXResearch

If you’d like to learn more about Coin Metrics and BitMEX Research, check out Coin Metrics’ weekly newsletter, State of the Network, and BitMEX Research’s blog.

Coin Metrics’ State of the Network: Issue 26

How Many Bitcoins Are Permanently Lost?

Bitcoin’s whitepaper, which recently turned 11 years old, is so concise that it makes only a passing mention of supply:

Once   a predetermined   number of coins   have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free. 

Diving into one of the earliest backups of Bitcoin’s code, we can find the now-legendary formula that sets the limit on block rewards. These simple lines of code effectively set Bitcoin’s supply at 21M BTC:

Unbeknownst to many, Bitcoin’s codebase does not contain any checks that BTC’s supply does not exceed 21M. Instead, the software checks that each block doesn’t claim more than the prescribed number. 

Applying the supply formula to get supply value at block 600,000 on October 19, 2019 gives us 18M BTC: 

210,000 blocks * 50 BTC + 210,000 blocks * 25 BTC + 180,000 blocks * 12.5 BTC = 18M BTC

The mining of this block was celebrated by the community as a milestone towards the end of the inflation process for Bitcoin. However, astute observers commented that Bitcoin’s supply didn’t actually exceeded the 18M milestone at block 600,000. Pieter Wuille, Bitcoin Core developer, mentioned that the actual supply as of block 600,002 was 17,999,854.82192702 BTC. 

In this feature, we dive into why Bitcoin’s supply is lower than expected, and calculate how many coins are permanently lost. Furthermore, we analyze exactly why these coins are lost, and account for what happened to them. We first examine coins that are provably lost, and then analyze coins that are assumed to be lost, but could potentially eventually be found.

Provably Lost Bitcoins

Genesis Coins

Bitcoin’s ledger is made of a set of “unspent outputs” otherwise referred to as the Unspent Transaction Outputs set, or UTXO set. Summing up those outputs’ BTC values give you the Bitcoin supply as seen by a full node. 

Bitcoin’s first block, the genesis of its history, contains a transaction minting 50 BTC. However, this transaction’s 50 BTC output isn’t included in the UTXO set. It’s still unclear whether it was an oversight or done on purpose.

The result is that those 50 BTC are not present in Bitcoin’s ledger, even if they are visible in a transaction included in the main chain.

Duplicate Coinbase Transactions

Another oversight from Bitcoin’s designer is the handling of duplicate transactions. While at first glance, it doesn’t seem possible for them to occur (as they contain digital signatures and references to previous transactions which makes them unique), it is still possible to create duplicate transactions.

The easiest transactions to duplicate are the coinbase transactions, which are the first transactions of every block and allow the miner to claim their block reward (the company Coinbase is named after these coinbase transactions), because they do not contain digital signatures or references to previous transactions. If a miner were to create a coinbase transaction paying out the exact same amount of BTC to the same addresses and with the same extra nonce (a small space of the coinbase transaction used to help mining), the transaction would be identical.

This happened twice in Bitcoin’s early history:

  • Transaction d5d2..8599 was the coinbase output for blocks 91,812 and 91,842
  • Transaction e3bf…b468 was the coinbase output for blocks 91,722 and 91,880

In each case, the second time the transaction was included, its outputs overwrote the previous ones.

The result is that the two overwritten outputs are not in the UTXO set. Those 100 BTC are not in Bitcoin’s ledger.

While appearing like an innocuous oversight, Russell O’Connor identified this as an attack vector back in 2012. Leveraging duplicate transactions, an attacker could remove other user’s past transactions from the ledger.

In response to this, BIP-30 was introduced in 2012 to forbid new duplicate transactions to be included until the older transaction’s outputs are all spent. However, the handling of the existing duplicates was not changed and they still remain in the chain to this day.

Later in 2012, BIP-34 also made duplicating coinbases much more difficult as they now had to include the height of the block they are part of.

Unclaimed Rewards

Another set of provably lost coins is linked to the verification of coinbase transactions by full nodes. 

Bitcoin’s protocol mandates that the miner of a valid block can credit themselves with a protocol-defined reward plus the fees from the transactions included in that block. Each full node checks that miners don’t try to claim more than they are allowed. However, they do not care if the miner claims less than their share.

Obviously, claiming less than their allotted reward would not be rational behavior from miners, but it has happened a surprisingly large number of times. The first time it occurred was at block 124,724 in May 2011 and the last time thus far at height 564,959 in late February 2019.

The most notable cases are listed in this table:

Broadly, this behavior happened in 3 distinct episodes, totaling 1,221 anomalies. The following chart shows the number of blocks that did not claim their full reward, bucketed by 1000 blocks:

One very intense episode occurred around height 162,000. Another more prolonged one occurred from 180,000 to 230,000 and a last one around block 530,000.

According to Bitcointalk user midnightmagic, the first instance was done on purpose as a tribute to Satoshi Nakamoto, on a suggestion of Bitcoin developer Matt Corallo. For the other cases, given the amounts lost by some miners, they are most likely attributable to bugs in the software used by miners to create the coin generation transaction.

OP_RETURN Outputs

There’s a special type of Bitcoin transaction output called OP_RETURN. They allow users to embed data in the blockchain (up to 80 bytes per output at the moment) without bloating the UTXO set (those outputs do not get added to the UTXO set − they are considered provably unspendable). 

While the great majority of such outputs are created with a value of 0 satoshis, some aren’t. As of block 600,000, there were 3.723039 BTC sent to OP_RETURN outputs, making them unspendable forever, and not part of Bitcoin’s supply.

Summary

In total, we can compute Bitcoin’s actual supply at block 600,000 working backwards from the expected 18M BTC value and subtracting what is provably lost.

This figure of 17,999,817 BTC as of block 600,000 is the “technically correct” view of Bitcoin’s supply. It’s what you would get by querying your full node. However, we can do better by looking at more cases that render bitcoins practically but not provably unspendable.

Assumed Lost Coins

Bogus Addresses

Prior to the standardization of OP_RETURN outputs, there was no easily accessible, provable way to burn Bitcoin. As a result, users resorted to “bogus addresses”, which is an address that does not have a known private key. 

When creating a Bitcoin address, we usually start from a known private key, then transform it to get the public key address it corresponds to. This process makes it very difficult to generate custom “vanity prefixes” (i.e. vanity public keys) − you basically have to “mine” private keys to find ones whose address starts with the desired prefix. 

However, in the case of bogus addresses, there’s no desire to ever actually spend from the address, so there’s no need to know what the private key is. Therefore the bogus address can start with any prefix (if it can be written using the Base58 alphabet). However, the last characters will be random (by design, the last characters of an address are a checksum to prevent against typos).

While it is impossible to draft a complete list of bogus addresses, we can list some notable ones:

Just those 3 addresses account for 2213.19538012 BTC lost as of block 600,000.

In theory, those coins are not lost forever − someone could find a private key for them. However, the only known way to find a private key given only an address is to randomly guess until you find the right combination (i.e. through bruteforce). In practice, the chance of that happening in the lifetime of our universe is pretty slim.

Bugs

Beneath the beautiful veneers of today’s wallets, there are critical pieces of code responsible for crafting, signing and broadcasting our transactions to the Bitcoin network. Nowadays, it’s rare to find debilitating bugs in them, but that wasn’t always the case.

In November 2011, MtGox fell victim to a bug in this part of their software. They sent 2609.36304319 BTC to a bogus script, with no known way to spend it. The bogus script was what would happen if you tried to send money to an “empty” public key with software not programmed to detect that this is not desirable.

There have been other similar bugs in other assets that rendered coins unspendable, most notably in Ethereum with the Parity self-destruct issue (513k ETH lost).

Zombie Coins

Another source of lost coins are the ones that haven’t moved in many years. As it’s impossible to know whether their owners still have the keys or don’t, they are often called “zombie coins”, neither alive nor dead. With this category, we leave the domain of quasi-certainty about whether the coins are truly lost. 

To stay conservative in our estimate, we’ll only count coins last touched before Bitcoin was traded on the first exchanges (July 2010). The rationale is simple: people that acquired Bitcoins before they could be traded away had less of an incentive to back up their wallets as the perceived value of Bitcoins (at the time) was very low. 

At block 600,000, there were 1,496,907.88000 BTC last touched prior to July 2010. According to various estimates, Satoshi Nakamoto purportedly owns more than half of those coins due to their status as the dominant miner for most of Bitcoin’s very early history.

The last time coins last touched prior to July 2010 were moved was in July 2019, when 150 BTC were spent.

Overall, since the 2013 bull run, those coins have been very rarely spent. Given the price appreciation from 2013 to now, either the owners of those coins are very long-term oriented holders, or they don’t have access to these coins.

Encumbered Coins

There’s one final category of coins that could be considered lost, or at least out of circulation for the time being: known stolen coins. Until the advent of better mixing solutions (which is effectively similar to money laundering, making it much more difficult to follow the money trail), they will be difficult to insert back into circulation, especially for very large amounts.

There’s been many major hacks and thefts over Bitcoin’s history, but two jump to mind as “out of circulation” – the 2011 theft of 80k BTC from MtGox and the 2016 theft of 120k BTC from Bitfinex.

In March 2011, 79,956 BTC were withdrawn from MtGox’s wallet, and have not been touched to this day. As of today, it’s the 6th richest address.

Chat between Jeb McCaleb and Mark Karpelès following the theft’s discovery source

The reason why this haul (worth $73k at the time it was stolen, $700M today) was never spent is unknown. Most likely, the thief is unable to access the private key.

In August 2016, Bitfinex lost 119,756 BTC to a hack. To this day, very few of these stolen coins have been moved and only 22 BTC were recovered. As of block 600,000, the addresses where the stolen coins were sent to still held 117,091.31922097 BTC.

Conclusion

The common adage that there will only ever be 21M coins is an optimistic one. Over time, quirks, bugs and other events impact how many Bitcoins actually exist.

From those estimates of lost coins, we can construct three adjusted views of Bitcoin’s supply:

  1. A technically correct one, which counts all but provably lost coins.
  2. A supply that excludes provably lost coins and coins which are assumed to be long lost or burned.
  3. A supply that excludes stolen coins in addition to provably and assumed lost coins.

This analysis is just one of many ways to assess Bitcoin’s true supply. Depending on needs, different categories could be considered, ignored or expanded upon. It also uses a top-down approach, starting from the maximum possible supply and removing various classes of lost or encumbered coins. Another way to estimate Bitcoin’s supply would be to break it down by time of last activity with the expectation that coins untouched for years are probably lost. We will continue to monitor lost Bitcoins, and update our findings in the future.

Network Data Insights

Summary Metrics

After three weeks of growth, BTC fees dropped by over 30% over the past week. Although ETH fees only fell by 7.3%, BTC still had average daily fees of over $241K over the past week, compared to $85.1K for ETH.

BTC difficulty continued to drop over the last week, falling by over 4%. However, BTC hash rate bounced back over the past week, growing 2.8%. This signals that BTC difficulty is likely to be adjusted back upwards in the near future, after it was readjusted downward on November 7th.  

Network Highlights

DAI, the decentralized stablecoin created by MakerDAO, has a supply limit which is officially referred to as its “debt ceiling.”  After DAI reached its debt ceiling of 100M tokens (which is roughly equivalent to $100M) on November 6th, the Maker Foundation quickly proposed an executive vote to raise the DAI debt ceiling to 120M tokens. The vote was executed on November 7th. Since then the DAI supply peaked at 102,979,304 on November 13th, and was 101,640,989 as of November 17th.

In addition to the DAI debt ceiling vote, the MakerDAO community recently voted to approve and activate Multi-Collateral DAI (MCD), which went live on November 18th.  MCD introduces the ability to create DAI tokens backed by collateral from multiple different types of crypto assets, in addition to ETH. 

In order to vote on decisions about DAI (and other decisions involving the MakerDAO ecosystem), MKR holders need to stake their MKR to signal support for a specific proposal. MKR needs to be in a designated voting contract in order to be staked. 

Examining MKR unique daily active addresses shows that usage spiked on October 9th, when MakerDAO announced MCD, and again on November 15th when the Maker Foundation held a vote to officially approve MCD. Additionally, MKR active addresses spiked on both July 27th and July 28th after the Maker Foundation opened an executive vote on whether to lower the DAI stability fee after it had reached all-time highs.

Market Data Insights

Most of the major crypto assets dropped in price over the past week. BTC fell 6% over the course of the week, while ETH dipped 3%.

Stellar (XLM) had a particularly down week, dropping 9%. XLM price recently surged on November 5th after the Stellar Foundation burned over half of all XLM tokens. After another temporary spike on November 11th, XLM price has dropped, and is now back close to price levels before the November 5th burn. 

ChainLink (LINK) continues its meteoric rise, growing 5% over the week while almost every other major asset was down. Additionally, NEO continued to outperform and is now up 70% over the last 30 days. 

Cardano (ADA) also ended the week in the green due to strong growth towards the end of the week. On November 12th, Cardano announced they were beginning the roll out of their incentivized testnet, which is a step towards decentralizing the Cardano network.

CM Bletchley Indexes (CMBI) Insights

All Bletchley market cap weighted indexes were down this week. Once again it was the Large Cap index that performed the worst, falling 6% off the back of BTC and ETH’s performance. The Bletchley 20 (mid-cap) and Bletchley 40 (small cap) Indexes were slightly in the red against the USD, but both returned ~6% against Bitcoin, demonstrating their strong relative performance against Bitcoin and large-cap digital assets. 

Interestingly, whilst the Bletchley Total fell almost 6%, the Bletchley Total Even was up almost 5%, further highlighting the weakness of large cap assets this week.

After Bitcoin’s very strong first nine months of the year, it seems that mid and small cap assets have found resistance against their BTC pairs. This is evidenced below where it can be seen that the relative strength of the Bletchley 20, and less so the Bletchley 40 has now persisted for the better part of two months. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Coin Metrics is hiring! We recently opened up 6 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 25

The Evolution of Ethereum Tokens

In 2015, Ethereum ushered in a new era for blockchains: the age of the token.

Broadly defined, a “token” represents a utility or asset and is typically issued on an existing blockchain. In contrast, a “coin” is a crypto asset that is native to its own blockchain and is primarily used as a currency (“coin” and “token” are sometimes used interchangeably, but we will keep the distinction throughout this piece). For example, BTC and ETH are coins, while MKR and BAT are tokens.

The concept of crypto tokens has existed in various forms since well before Ethereum. For example, Bitcoin “colored coins” can be used to tokenize items using BTC, without the need to issue a new asset. This can be done by “coloring,” i.e. marking, specific coins using OP_RETURN. Alternatively, this can also be done by agreeing that specific Satoshis, which is the smallest unit of BTC, represent a real-world asset.

But Ethereum introduced a new, more user-friendly way to create tokens. Using a simple smart contract, Ethereum made it easy for anyone to launch their own token for just about anything.

Before long, thousands of tokens were launched on Ethereum. The explosion of tokens made standardization increasingly important, to ensure that the tokens could be exchanged for each other. ERC-20 implemented a standard interface that made it trivial to exchange any ERC-20 token for another, and to integrate ERC-20s within crypto wallets and decentralized applications (dapps). In early 2018, ERC-721, which are tokens that are specifically used to represent unique, non-fungible digitally scarce tokens (for example, a CryptoKitty or a one-of-a-kind piece of crypto art) was also adopted as an official standard.

Since then, the pace of Ethereum token change has increasingly accelerated. In this piece we explore the evolution of Ethereum tokens and look at where they might be headed.

Network Value to Token Value

One way to evaluate tokens is to look at the market cap of the smart contract platform’s native coin (i.e. ETH) compared to the aggregate market caps of tokens launched on that platform. We refer to this ratio as the “Network Value to Token Value” (NVTV) ratio, as proposed by Chris Burniske

In this case, we calculated the ratio by dividing ETH’s market cap by the aggregate market cap of a selection of the biggest ERC-20s. Although there are thousands of other tokens that have been launched on Ethereum, the selected tokens represent a large majority of the total ERC-20 token market cap. A full list of the tokens we used can be found as a footnote under the below chart. 

Ethereum’s NVTV ratio has been steadily declining. On April 1st, 2019, Ethereum’s NVTV ratio hit an all-time low of 1.57. As of November 10th, the ratio is 1.90.

ERC-20 Assets: ant, bat, bnb, cennz, ctxc, cvc, dai, fun, gnt, gusd, ht, icn, knc, leo_eth, link, loom, gno, lrc, mana, mkr, omg, pax, pay, poly, powr, ppt, qash,rep, salt, srn, tusd, usdc, usdt_eth, wtc, zrx

Realized cap tells a similar story. 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 (cost basis is basically the total amount originally invested).

The realized cap version of Ethereum NVTV has also been steadily decreasing and is currently at an all-time low of 2.57. The decreasing NVTV ratios signify that tokens have steadily been gaining ground on ETH in terms of valuation. 

Most of this growth since mid-2018 has been coming from a specific subset of ERC-20 tokens: stablecoins. 

The below chart shows the share of market cap for utility tokens, exchange tokens, and stablecoins. We used a simple, high-level taxonomy for categorizing tokens; however, other groupings or taxonomies are possible. 

A “utility token” is a subset of tokens that are “used to finance the network by providing its buyers with a guarantee of being able to consume some of the network’s products” (definition via BitcoinWiki). Utility tokens were typically issued during the ICO boom to serve as a way to raise money as well as a way to make payments within a project’s ecosystem, access a particular service or feature, or participate in a particular activity such as voting.

“Exchange tokens” are a subset of utility tokens created by cryptocurrency exchanges (e.g. Binance’s BNB token). Exchange tokens are typically used to raise funds for exchanges and offer discounts on things like exchange fees. 

“Stablecoins” are tokens that are designed to fix their value to another asset, often a fiat currency such as the USD. Tether is currently the biggest stablecoin by most measures, but other stablecoins built on top of Ethereum include DAI, USDC, PAX, and TUSD. 

Although exchange tokens were gaining ground in early 2019, BNB switched over from an ERC-20 token to a mainnet version of the BNB token (on their own blockchain) in April, which caused Ethereum exchange coin market cap to plummet. 

On July 1st, 2018, Ethereum utility tokens had an aggregate market cap of $7.52B, compared to $2.98B for exchange tokens, and $109M for stablecoins. As of November 10th, 2019, utility tokens have a market cap of $5.19B, exchange tokens have a cap of $2.55B, and stablecoins have a market cap of $3B, up by over $2.8B from just a year and a half earlier.

The below chart shows the percent share of market cap for each of the three token categories. A complete list of the assets we used for each category can be found in the footnote under the below chart.

Utility tokens: ant, bat, cennz, ctxc, cvc, fun, link, loom, gno, gnt, icn, lrc, mana, mkr, omg, pay, poly, powr, ppt, qash, rep, salt, sr, wtc, zrx

Stablecoins: dai, gusd, tusd, usdc, pax, usdt_eth

Exchange Tokens: bnb, ht, knc, leo_eth

Furthermore, most of the growth has been coming from one specific stablecoin: Tether (USDT). 

As we’ve covered in past issues of State of the Network, Tether exists on multiple different protocols, the two biggest of which are the Omni protocol (which itself is built on top of Bitcoin) and Ethereum. Over the last several months, usage has been shifting from the Omni-based version to the Ethereum-based version of Tether. 

The Transaction Flippening 

Historically, aggregate token transaction count has been lower than Ethereum’s non-token transaction count (i.e. total transaction count minus ERC-20 and ERC-721 transaction count which was largely comprised of simple transfers of ETH). But since May 2019, token transactions have been threatening to pass non-token transactions. As of November 10th, ERC-20’s had about  303,000 daily transactions vs about 290,000 for ETH.

The below chart shows transaction counts for ERC-20s (red line), ERC-721s (green line), and non-token transactions (blue line, ETH transactions minus ERC-20 and ERC-721 transactions), smoothed using a 7-day rolling average.

A lot of ERC-20’s rapid transaction count rise has also been due to USDT. The below chart shows the market share of the ten ERC-20 tokens with the highest daily transaction counts (averaged over the last 30 days) over the course of 2019. USDT started gaining ground in May and now has over 80% of the share of transaction counts of the top ten tokens.

ERC-721s Unchained

While ERC-20s have been the dominant type of token up to this point, we may be on the cusp of the rise of ERC-721s. 

As of late October, ERC-721 transfer count has shot past both ERC-20 and ETH transfer counts. Previously, ERC-721 transfer count peaked during the CryptoKitty craze of late 2017. November ERC-721 transfer counts have already rocketed past peak CryptoKitty transfer counts.

Transfer count paints a slightly fuller picture than transaction count of the real trading activity of individual ERC-721 assets. Since ERC-721’s each represent unique tokens, many tokens are often bundled together and transferred as part of a single transaction. The below chart shows transfer counts for ERC-20s (red line), ERC-721s (green line), and ETH transfers (blue line), smoothed using a 7 day rolling average. 

This large spike in ERC-721 tokens is due almost entirely to an Ethereum-based card game called “Gods Unchained.” 

Gods Unchained is a trading card game that is similar to the popular game Hearthstone. However, unlike Hearthstone, Gods Unchained is built on the Ethereum blockchain, and each one of its cards is represented by an ERC-721 token. This means that users truly own their cards and can trade them freely on the open market, similar to any other cryptocurrency.

Gods Unchained has been in the news recently due to an incident related to the Hong Kong protests. On October 7th, Blizzard, the maker of Hearthstone, announced that they were rescinding the prize money from a champion pro player and suspending him for a year because he had spoken out in support of the Hong Kong protests. 

The next day, in a tweet that has since been retweeted over ten thousand times, Gods Unchained stated that Hearthstone cared “about money more than freedom.” They also offered to pay for all of the banned Hearthstone player’s lost winnings and offered a free entry ticket into a large Gods Unchained tournament. Subsequently, Gods Unchained sold out their Genesis Card Pack for a total of 33,333 ETH, equivalent to about $6.2 million.

Although still early, Gods Unchained could be an example of a real use case for crypto tokens in gaming. Blockchain-based games put gamers in control of their in-game assets, which means they cannot be revoked or censored. Gods Unchained is only one example of many games that are now being developed on blockchains using non-fungible tokens (NFTs). NFTs are also being used in applications like the Ethereum Name Service and in virtual worlds like Decentraland, and will soon likely be used for many other types of applications as well. 

Although there are still only about 4,600 ERC-721 contracts compared to over 184,000 ERC-20 contracts (and over 12 million non-token contracts), ERC-721 contracts have been growing rapidly over the course of 2019. Since January 1st, the number of deployed ERC-721 contracts has grown by almost 350%, compared to about 39% and 36% for ERC-21 contracts and non-token contracts, respectively. 

Furthermore, overall Ethereum smart contract usage is growing. Ethereum contracts calls have been steadily climbing upwards, and recently hit an all-time high thanks in large part to Gods Unchained. As the Ethereum smart contract economy continues to grow and evolve, tokens will likely become an increasingly important part of the ecosystem.

The below chart shows Ethereum contract calls count smoothed using a 7 day rolling average.

Ethereum tokens have already evolved tremendously over their short life span, and will undoubtedly change just as rapidly moving forward. We will continue to monitor Ethereum’s NVTV, the rise of Ethereum based stablecoins, and the potential breakout of ERC-721s.

Network Data Insights

Summary Metrics

After XRP daily average transaction value temporarily surged passed ETH last week, both XRP and BCH adjusted transfer values dropped significantly this week. LTC’s adjusted transfer value, however, shot up over 89% after being down by over 20% the previous week. Despite transfer value being up, LTC’s transfer and transaction count were both down, signifying that a relatively small number of addresses were likely moving around large amounts of crypto.

BTC’s daily fees gained over 10% for the second straight week, after growing by 16% last week. BTC continues to climb ahead of ETH in terms of daily fees; over the past week, BTC averaged $346.9k of daily fees compared to $91.8k for ETH. XRP fees grew by over 100% this past week, but still averaged less than $1k per day. 

Network Highlights

LTC’s hash rate and difficulty have both been in free fall since July. Both are now on the verge of reaching lows not seen since early 2018. 

After BTC’s hash rate dropped last week, as we reported in SOTN Issue 24’s Network Data Summary Metrics section and on Twitter, BTC’s difficulty readjusted downward on November 7th.

Market Data Insights

Bitcoin’s price has remained largely unchanged over the past week at -2% while Ethereum (+4%), Litecoin (+9%), and EOS (+9%) have experienced moderate gains. 

Among large-capitalization assets, Stellar has seen the largest gains at +19% after the Stellar Development Foundation effectively burned 55 billion tokens by sending them to an account that cannot sign transactions. 

Among smaller capitalization assets, Cosmos (+24%) saw a large increase, although there does not appear to be a specific catalyst. Tezos (+41%) has seen the strongest gains among this set of 24 assets largely due to Coinbase’s announcement that it would offer staking rewards on its platform. Maker was up +30%, perhaps in part due to the upcoming launch of multi-collateral Dai scheduled on November 18. 

Revisiting the Bitcoin Safe Haven Thesis 

For the majority of this year, gold and other haven assets have seen large capital inflows due to a confluence of factors: 

  1. An environment of heightened geopolitical instability, particularly with respect to U.S.-China trade tensions but also in other localized areas.
  2. Softness in several key macroeconomic indicators in most developed world economies, particularly in manufacturing, a sector traditionally viewed as a bellwether of the overall economy.
  3. A sharp and unexpected pivot to more monetary policy easing, most notably from the Federal Reserve and from the European Central Bank, and a fear that more extreme monetary policy tools will be necessary.

These factors caused gold to rally above $1,500, peaking in late August. Market commentators also drew comparisons to Bitcoin because of its attractive store-of-value properties. Indeed, short-term measures of correlation between Bitcoin and gold returns earlier this year reached one of the highest levels in history (almost +0.50). 

Recent developments have made it clear that we are now witnessing another shift. Based on (1) the increase in long-term sovereign bond yields across most developed world economies, (2) a shift in forward guidance from the Fed, and (3) a sell-off in gold, market participants now believe we are past the point of peak monetary policy easing. Any further easing appears to be appropriately priced in. Recent firmness in macroeconomic indicators confirm that fears of a global recession are overblown and optimism for a U.S.-China trade deal is rising. 

Bitcoin received intense media attention as the need for safe-haven assets increased but it has largely been ignored as this need has abated. Recent price action and short-term measures of correlation between Bitcoin and gold returns complicate the simple narrative that Bitcoin benefits from safe-haven capital flows. 

Gold recently had one of the largest single-day sell-offs in years, but the 30-day correlation between Bitcoin and gold returns stands at -0.22. Not only does this cast doubt on the narrative established earlier this year, it suggests the reaction function of Bitcoin to macroeconomic and geopolitical developments is complex and inconsistent. 

CM Bletchley Indexes (CMBI) Insights

For the second week running the Bletchley Mid Cap and Small Cap indexes have outperformed the larger cap indices, returning 5% and 2% respectively. As evidenced above in the Market Data Insights, the outperformance of the Mid Cap Index is largely due to the performance of Tezos, which makes up 10% of the index and returned 41% for the month.

Since Bitcoin is a major component of both the Bletchley 10 (69%) and Bletchley Total (64%), their performance relies a lot on the returns of Bitcoin over the period. Bitcoin was one of the weaker performing large-cap assets of this week, and its impact on the Bletchley 10 and Bletchley Total Indexes is highlighted by the difference in returns between the indexes market-cap-weighted (-0.5%) and the even weighted (4%) versions. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Coin Metrics is hiring! We recently opened up 6 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 24

Weekly Feature

Macroeconomic Indicators for the Crypto-Economy 

Just like a nation state’s economy has economic concepts (such as gross domestic product, inflation, and unemployment), a crypto asset can represent a miniature economy that has similar economic concepts. We present our network data using a simple analogy that many people are familiar with: macroeconomic indicators. 

Miniature Crypto-Economies

For certain ERC-20 tokens, viewing crypto-networks as small-scale economies is relatively straight forward. For example, Golem (GNT) represents a miniature economy in which idle computing power is the sole service offered and purchased. Similarly, Basic Attention Token (BAT) represents an economy in which the sole services provided are an individual user’s attention and advertising. 

When considering Bitcoin’s crypto-economy, things are a little more complex. Under a narrow interpretation, Bitcoin itself is the sole good that is manufactured and sold in this virtual economy. An alternative interpretation is viewing the Bitcoin network as a full-fledged economy in which Bitcoin is used as a medium of exchange for a wide range of goods and services. This represents Bitcoin’s use on the dark web, as one example. 

Although analyzing a nation state’s economy is difficult because of its almost infinite complexity, government statistical agencies report on the current state of the economy by creating a conceptual, idealized definition of what they are attempting to measure, and use sophisticated sampling and survey techniques to create an estimate. Despite their best efforts and steady improvements in data collection methods and calculation methodologies, macroeconomic data is reported with lengthy lags and is subject to revisions long after the initial release. Policymakers and researchers are forced to rely on imperfect information to drive their decisions. 

Crypto-economies are less susceptible to the lag and measurement error present in macroeconomic reporting in nation-state economies. The most fundamental action in any economy is a transaction between a willing buyer and a willing seller for a good or service, and a crypto-asset’s shared, immutable, and open ledger reveals each individual transaction (except for layer 2 transactions, and transactions taking place inside custodians), allowing analysis of the economy in real-time. In theory, if an actor knew the identity behind every address and the nature of each transaction, the state of a crypto-economy could be reported with no lag and with close to perfect precision. 

Bitcoin’s Gross Domestic Product (GDP) Growth

Among macroeconomic indicators, a country’s gross domestic product (GDP), which measures the economic value of final goods and services produced by an economy over a given time period, is often viewed as the single most important indicator. 

What is the network metric that most closely matches the conceptual definition of GDP? Coin Metrics’ adjusted transfer value, which measures the USD value of the native units transferred over a given period of time, is a strong candidate. According to the latest data, $2.33 billion of value is transferred in the Bitcoin economy each day. 

Although adjusted transfer value is likely directionally correlated with GDP, it likely overstates the true GDP figure perhaps by several orders of magnitude because of two reasons. One, transactions involving the purchase of goods and services are likely a small fraction of total activity. Two, of the transactions that involve the purchase of goods and services, this metric does not exclude the purchases of intermediate goods (i.e. a product used to create a final product), which are explicitly excluded from the GDP calculation. 

However, Coin Metrics does make several adjustments in order to make this metric more closely represent true economic activity. For UTXO-based chains, each output transaction must be comprised of prior inputs. All inputs are wholly consumed such that it is impossible to definitively know which outputs represent a legitimate, economic transfer of value and which outputs represent change being sent back to the sender (see here for more details on change). Coin Metrics employs several sophisticated heuristics to detect change outputs and other non-economic transfers. Such adjustments are the first step to creating an accurate GDP calculation. 

Although a true measure of Bitcoin’s GDP is currently unknown, it is likely significant. Under the assumption that only 1 percent of adjusted transfer value is for final goods and services, this would result in a nominal Bitcoin GDP of $8.4 billion, approximately equivalent to the world’s 140th biggest economy. 

For policymakers, the level of a country’s GDP is rarely of interest. Instead, they are interested in the growth of GDP and how this growth fluctuates against theoretical potential GDP growth. Below we show Bitcoin’s GDP growth over time, represented as annualized three-month continuous growth. Bitcoin’s “business cycles” can be seen here, sometimes growing rapidly and sometimes contracting rapidly. Current growth is slightly negative at -15% but up sharply from recent lows. 

Extreme growth numbers can be seen in Bitcoin’s history. For example, a continuous growth rate of 600% (last seen during the peak of the recent bubble), sustained over a year, leads to an increase of over 40,000% from its initial value. 

Note on smoothing: All level charts are smoothed with a 28-day centered moving average, followed by a 2-day centered moving average. Recent observations are extended forward using a 7-day non-centered moving average. Continuous growth charts are calculated after these transformations are applied.

Bitcoin’s Population Growth 

Demographics are often linked to macroeconomic reporting because working-age population growth is a primary factor in a country’s long-term potential growth. Assume that the Bitcoin network represents a virtual nation-state. What is the population of this nation and how is it growing? 

One estimate of the total population is the number of addresses with a balance greater than 0.001 Bitcoin, a number that is large enough to exclude dust balances and small enough to represent a meaningful economic amount for most people in the world. Current estimates indicate 14.42 million users of the Bitcoin network, although the true number remains unknown — there can be a many-to-one or one-to-many mapping between individuals and addresses. Based on publicly released user counts for some exchanges, this figure likely understates the true number. 

User growth remains strong at 19% although down from historical averages. User growth has become negative only once (as measured over this interval) in Bitcoin’s history during early 2018, although this artifact is likely to have been caused by UTXO consolidation as high fees subsided. Growth figures are lower over the past two years, perhaps because of the increased use of exchanges and custodians as well as more efficient transaction batching and wallet software. 

Bitcoin’s Transaction Count Growth 

Although Bitcoin’s transaction count does not map to an existing macroeconomic indicator, it can serve as an alternative measure of growth. Similar to how retail sales, personal income,  durable goods orders, manufacturing and services PMI all serve to measure more narrow components of a country’s GDP, analyzing transaction count can provide a more focused view on one element of economic activity. 

Current transaction count stands at 302,000 transactions per day. Peak transactions have never exceeded 400,000 transactions per day, and as we approach this level, fees begin to rise and economic participants will be incentivized to move their transactions through second layer channels. Counting transactions on the blockchain layer and higher layers (in the future) is one important aggregate measure. An alternative related metric is transfer count which counts the total number of transfers within all transactions. 

Here transaction count growth illustrates a problem of Bitcoin’s deflationary nature for economic activity. Current transaction count growth is -30% and has been negative for several months. What we see here is that as Bitcoin’s price rises (denominated in U.S. dollars), the price of goods and services denominated in Bitcoin decreases. A deflationary economic environment reduces the incentive to spend because holding existing Bitcoin means that an individual can purchase more goods and services at a later time. This is a key reason why almost all the planet’s central banks have price stability as their central mandate and a small but positive inflation target of 2% as one of their policy objectives.

Bitcoin’s Block Size Capacity Utilization 

A nation state’s capacity utilization is also a commonly examined growth indicator. Capacity utilization measures the degree to which a nation’s productive capacity is being utilized. Most of the economic activity in the developed world economies have now shifted to services, and capacity utilization is normally a measure of a nation’s manufacturing industry. Nonetheless, capacity utilization is important because the manufacturing sector is often seen as a bellwether for the broader economy. High rates of capacity utilization also signal wage and price pressures which are important considerations for a central bank’s policy response. 

Here we show Bitcoin’s block size capacity utilization — the mean size of a Bitcoin block as a percent of maximum theoretical size. Although the analogy is imperfect, analyzing block size as an important indicator of growth draws several similarities. As block size reaches close to its theoretical maximum, it places upward pressure on Bitcoin’s fee market and generally leads to a slow down in growth of other macro indicators. 

Maximum block size has only been reached twice in Bitcoin’s history and capacity utilization currently stands at 87%. 

Bitcoin’s Industrial Production 

Similar to capacity utilization, industrial production is a measure of a nation state’s manufacturing sector — including mining. Although the analogy is again imperfect, Bitcoin’s hash rate is conceptually similar. Hash rate has increased from less than 5 million hashes per second during its first day of existence to a current hash rate of 90.91 million trillion hashes per second. 

Similar to a nation state’s manufacturing sector, miner behavior is important for the health of a crypto network, not only as a measure of security, but also because miners are one of the only natural sellers in the market. Assuming that Bitcoin miners breakeven in the long-term, miners must sell over $6 billion of Bitcoin over the course of a year based on today’s prices. 

Hash rate growth lags price growth by several months. The current hash rate is in line with recent historical averages but down from recent highs, mirroring price declines. Growth, measured over this interval, has only turned negative three times in Bitcoin’s history. Declines in hash rate are critical events and have strong implications for the amount of miner-led selling pressure. 

Bitcoin’s Money Growth 

Although Bitcoin’s annual issuance rate is often compared to a nation state’s inflation rate (usually measured as CPI growth), the comparison is incorrect. Currently, Bitcoin does not serve widely as a unit of account and few goods and services are denominated in Bitcoin terms. Therefore, a basket of goods and services denominated in Bitcoin does not exist and an inflation rate cannot be calculated. The more appropriate comparison is growth in base money or perhaps a measure that represents credit creation in addition to base money, like the Federal Reserve’s balance sheet. 

Although critically important for Bitcoin’s appeal as a store-of-value, Bitcoin’s issuance rate is uninteresting precisely because of its predictability. Current issuance is 3.6% and will drop to 1.8% when the block reward halves around May 2020. However, the implications for miner-led selling flow are significant and market participants’ belief that the halving is impactful on prices may become self-fulfilling. 

Although early in Bitcoin’s development, a rudimentary credit market is being developed for Bitcoin. Already we are seeing the rise of short-term, collateralized lending from providers such as Genesis Capital. Discussion of Bitcoin-denominated bonds are active and in the far future, a bank that takes Bitcoin deposits and originates Bitcoin loans is possible. The effective upper limit on Bitcoin in circulation could therefore exceed the current supply if trusted parties begin issuing credit-like instruments, not too dissimilar to the differences between Money Stock (M1 and M2) and the Monetary Base in traditional money markets. How this will impact the Bitcoin economy remains to be seen and deserves greater study. 

Further Study 

As the field of network analysis advances and as crypto assets continue to develop, data on the state of these economies will improve in quality. For example, a method that can characterize the entire address space will allow the reporting of headline metrics and its subcomponents. The rise of a robust lending market lends itself to yield curve analysis and credit creation metrics. Many existing metrics can also be reported on a per capita basis using active addresses or other metrics representing user count. 

Summary 

A small country (like Iceland, containing a population of 360,000) has a government statistical agency publishing a complete set of macroeconomic indicators that report on the state of the economy. Bitcoin and other crypto-assets have user counts and levels of economic activity exceeding small nation-states, and these virtual crypto-economies deserve first-class macroeconomic reporting. Coin Metrics is committed to using the principles and best practices established by government agencies and private organizations to provide transparency on the state of these networks. 

Network Data Insights

Summary Metrics

BTC and BCH market cap grew for the second straight week (measured on a week-over-week basis), while ETH, XRP, and LTC bounced back from down weeks. However, although market caps were up across the board, BTC and ETH usage were both down: BTC and ETH active addresses were down over 2% week-to-week, and transaction and transfer counts are both down by over 4%. 

After surging to new all-time highs at the end of October, BTC hash rate is down over the last week. There are reports that the drop in hash rate may be related to the end of China’s rainy season, which causes some hydropower stations to decrease their capacity and forces many miners offline in search of cheaper electricity. However, it may also be due to a lag between price and hash rate decline, following the price drop from $10k to $8k. Alternatively, it could simply be due to variance. 

Network Highlights

BTC realized cap continues to hit new all-time highs; on November 3rd BTC realized cap hit a new high of $102,936,158,856. “Realized capitalization” is calculated by valuing each unit of supply at the price it last moved and can be thought of as the average cost basis for crypto asset holders. Read more about how we calculate realized cap in State of the Network Issue 14.

BTC’s realized cap has grown by about 30% since the beginning of 2019, which is more than any other large crypto asset over the same period. For comparison, XTZ’s realized cap grew by 12%, LTC’s grew by 3%, and ETH’s declined by 9%.

After ETH total daily transaction fees threatened to pass BTC over the course of September, BTC has now pulled back out into the lead. BTC fees surged to over $439,000 on October 26th, and have remained at $300,000 or more for most of the days since. ETH had a little over $100,000 daily fees on October 26th, and has not topped more than $106,000 since.

Both BTC and ETH continue to dominate all other blockchains when it comes to overall fees. The following chart shows the percent of mining revenue (which we define as total transaction fees plus newly issued tokens, i.e., block reward) composed of transaction fees, averaged over the last three months.

In the long run, most blockchains’ block rewards will gradually decrease towards zero due to regularly scheduled block reward halvings. As block rewards decrease, fees begin to become a larger percentage of overall mining revenue and therefore become a more and more critical part of a chain’s long term sustainability and health.

Interestingly, after the October surge in ETH fees, about 4.5% of ETH’s mining revenue is composed of fees, compared to 1.8% for BTC. However, no other chain comes close to either ETH or BTC. Only 0.23% of DASH mining revenue is composed of fees, and only 0.03% of BCH revenue currently comes from fees.

Market Data Insights

Bitcoin’s two biggest forks have outperformed most of the rest of the major crypto assets over the past month. Surprisingly, Bitcoin Cash SV (BSV) has provided top monthly returns, rising 56% over the last 30 days. Bitcoin Cash (BCH) is not far behind, with a 31% gain, compared to a 13% gain for Bitcoin itself. The following charts show trailing month returns, from October 3rd to November 3rd.

China-based crypto assets, like Tron and NEO, have also exhibited strong gains over the last month. The direct cause of Tron and NEO’s outperformance remains unclear, but remarks from Chinese President Xi Jinping urging greater development in blockchain technologies may have been one of the catalysts, as we wrote about in last week’s State of the Network.

Meanwhile, after relatively strong market cap growth over most of the past year, Tezos’ price has started to decline, dropping 6% over the last 30 days.

CM Bletchley Indexes (CMBI) Insights

Despite a historic Friday that saw Bitcoin pump over 40%, the Bletchley Indexes returned mixed results this week. The Bletchley 20 (Mid Cap) and Bletchley 40 (Small Cap) performing the best, returning 0.5% and 1.5% respectively, while the Bletchley 10 (Large Cap) had a disappointing week, falling 2.5%.

October broke a 3 month downwards streak for crypto asset prices, with all indexes returning above 8%. The Bletchley 20 (Mid Cap) performed the strongest, appreciating 15% against the USD and 4% against Bitcoin. 

There was no asset turnover between indexes during the November monthly rebalance.

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Coin Metrics is hiring! We recently opened up 6 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.