If you’re firing up Coinmetrics for the first time in a while, you’ll notice a trove of new content. Here I’ll give a little bit of detail into how you can use these indicators and incorporate them into your investment strategy.
First of all, Coinmetrics is now open source. You can visit our Github here. Feel free to scrutinize our methods. We do not monetize our content and we are committed to transparency so our data collection can be replicated. Now as to our novel features:
1. Added support for Monero
Monero is a cryptocurrency built on the Cryptonote protocol. It boasts a variety of innovations which enhance user privacy, unlinkability, and fungibility. It also boasts an ASIC-resistant mining algorithm to resist mining centralization. Since Monero transaction amounts are private, it resists blockchain analysis. Hence we cannot procure on-chain transaction volume, which is a vital part of the Market to Transaction Volume indicator.
That said, we do have some data on Monero which you can obtain at our data downloads page or visualize on the comparative charts. This is a snapshot of what you’ll get if you download the Monero data.
As you can see, the USD on-chain transaction volume column is empty, due to RingCT which hides transaction amounts. However, we do have figures for exchange volume, the number of daily transactions, and the value of newly-minted coins on a daily basis. We hope that this can give you an insight into how Monero works.
2. Added support for Ethereum Classic and PIVX
Ethereum Classic is the Ethereum fork that occurred in the aftermath of the DAO, as some users wanted to retain the immutable property of the blockchain. PIVX is a “fair relaunch” of Dash, aiming to avoid the controversy surrounding the Dash launch in which a large number of coins were mined in a two-day period.
For now, we’re focusing on projects which attempt to recapture the features of money, rather than appcoins. The two exceptions are Ethereum and Ethereum classic. Since analyzing multiple blockchains takes resources, we are focusing on building a sample of “cryptocurrencies” first, then expanding our offerings. These are more likely to have comparable features, since their use-case is similar – enabling the digital transfer of value.
Our additions of the minority ETC and PIVX chains lets you visualize relationships relative to their predominant counterparts.
For instance, here is a smoothed graph of daily inflation for Dash and PIVX. Notice the spikes, representing monthly treasury disbursements.
And here’s inflation for Ethereum and Ethereum Classic, with Bitcoin for reference. Notice how Ethereum’s Difficulty Time Bomb (Ice Age) is slowing new coin issuance.
We’re glad to bring our readers and users an ever-widening cross-section of cryptoassets.
3. Added daily inflation figures
Widely variable rates of inflation in various cryptoassets is something that has flummoxed analysts. As two Sia devs mention in a widely-circulated Medium post, inflation is virtually nonexistent from the many coin ranking sites. This can leave investors with a mistaken apprehension of the dilution their holdings will face.
To understand cryptoasset inflation, imagine a company which funds operations solely through issuance of common stock. This continually dilutes the claims of current equity holders on a proportion of the stock, reducing their voting power, and forcing the company to grow or suffer a decline in the unit price of a share. The more dilution, the more risk that the market revises down share price. For cryptoassets, supply growth is generally known ahead of time (aside from special cases like Ethereum where a change is planned, or cryptoassets with managed exchange rates). One could argue that the market has incorporated future supply growth into token price and that highly inflationary currencies might pose no risk whatsoever to tokenholder value. However, given that inflation figures are difficult to obtain, and have to be manually computed rather than existing on CoinMarketCap or any of the aggregators, we find it implausible that the market has priced in future inflation in all cases.
Therefore we attempt to address this by providing daily supply inflation data and charts, so cryptoassets can be easily compared. From our perspective, if miners choose to sell off all newly-minted coins, that represents a continuous negative pressure on price that must be compensated for with new demand. Thus we remain agnostic on the question of whether the market is efficiently pricing in inflation. We can however make statements like “at current rates of dilution and current prices, new coin issuance is generating $2.9 billion in sell pressure.”
Here’s a chart with year-to-date daily inflation trends for Bitcoin, Litecoin, Ethereum, Dash, Zcash, Decred, and Monero.
4. Added Value of Coins Created
Quite simply, this is the value of daily coins issued, either through mining or staking. This sets a dollar value on inflation. You can also read this as the daily sell pressure generated by inflation, assuming miners/stakers sell off their whole stash. In this metric, Ethereum actually far surpassed Bitcoin for the June-August 2017 period.
Value of coins created (VoCC) can also be interpreted as the amount that the network pays miners/stakers in exchange for security on a daily basis. (It doesn’t include fees – we’re considering another metric that includes a comprehensive picture of miner revenue.) So yesterday, Bitcoin miners were paid $8.2 million for their services, Zcash miners $1.72m, Litecoin miners about $900,000. VoCC has some interesting applications. You could, for instance, add it up on a time-series basis and find the total amount the network paid miners for their services at historical prices. This is useful as it is somewhat incoherent to apply current exchange rates to the value of mining in years past, as miners tend to sell off their coins to pay for ongoing costs. Much work remains to be done here, but we suspect that this figure is another useful way to compare cryptoassets.
5. Added Exchange to Transaction Volume
This is a simple indicator dividing the value of exchange transactions by the value of on-chain transactions. Due to difficulties estimating on-chain volume, the numbers are largely meaningless, but the time-series and cross-sectional relationships still hold meaning.
The theory behind this one is that exchange volume is more short term and speculative, as opposed on on-chain volume which is costly and implies actual usage. Thus it’s a method, in theory, to disentangle cryptoassets in the midst of a speculative rush versus those quietly plugging away yielding decent real-world utility. A higher number means more volume is driven by exchanges.
Decred, Bitcoin, and Zcash according to this model have high on-chain volume and less exchange volume. We leave the interpretation to you. Feel free to chime in on twitter.
6. Added transaction count
This is a chart (and extractable data) which details the number of on-chain transactions on each blockchain that day. It helps determine which cryptoassets have actual on-chain usage. We will finish processing Ethereum blockchain data soon, and you’ll see that it has well-surpassed Bitcoin for the number of daily transactions.
That’s all for now. We hope you will be able to use our metrics and charts productively. If you find an interesting relationship, tag @coinmetrics on twitter. If you want to see your favorite cryptoasset added or have a comment on one of our indicators, get in touch.