Crypto Mid-Week Review 6/26
Curated reads, listens, views by Wilson Withiam and Ria Bhutoria.
Quick note: We apologize for the delay in publishing our usual Crypto Weekend Review, but we have hard at work on some new research material that should be hitting your inboxes soon! This segment will be back to its regularly scheduled release next week.
Weekly Spotlight 🔦
Bitcoin Average Dormancy by Reginald Smith and David Puell
Crypto asset valuation is considered a deeply important field as related research is helping investors separate useful market signals from the cluttered mass of on-chain data and Twitter opinions. Reginald Smith and David Puell’s latest work exploring Bitcoin dormancy provides yet another actionable valuation method that can shed some light on the state of Bitcoin market cycles and its long-term economic health.
Bitcoin dormancy — which was first proposed by Smith in 2018 — is a ratio of coindays destroyed* to on-chain transaction volume. Both metrics help describe Bitcoin’s economic state independently, but Smith says dormancy integrates these “narratives into a single metric” and simplifies the process of distinguishing bullish from bearish market activity. High dormancy means more long-term holders are selling their coins (likely to take some profits), a bearish indicator. In comparison, low dormancy is bullish as more coins are being held for a longer period of time.
Smith and Puell then built off of Smith’s original idea and introduced two new attempts at capturing phases in Bitcoin’s market cycles: (1) the ratio of dormancy to UTXO age (DUA ratio) and (2) dormancy flow. DUA ratio helps measure whether the Bitcoin market is in a stage of accumulation or distribution, while Puell says dormancy flow is ideal for marking Bitcoin price bottoms and assessing bull market “health.” The authors do caution dormancy is prone to false signals (like when Coinbase transferred a large percentage of funds between cold storage wallets last December) and may become less reliable long-term if any major network fundamentals start to shift.
For more on Bitcoin and crypto valuation methods from some of the top minds in the space (like Smith and Puell), check out the Valuation Depot on Kana & Katana (courtesy of Ikigai Asset Management).
*Coindays destroyed or bitcoin days destroyed was first introduced in 2011 as alternative to total transaction volume, which can be easily manipulated by a single actor. Coindays destroyed is calculated by multiplying a Bitcoin UTXO amount by the number of days since it last moved, attributing more weight to dormant coins, or coins that have not been spent in a while. For an example, 1 BTC that hasn’t moved in 100 days is equal to 100 BTC that were spent a day ago. Since the weighted approach accounts for transaction volume manipulation, coindays destroyed is considered a better measurement of real on-chain economic activity.
Reads 📚
- Bitcoin bites the bullet by Nic Carter
- Bitcoin is the Antivirus (Mushroom Medicine) — Part 3 / 4 by Brandon Quittem
- Uniswap & Kyber Network Research & Analysis by Delphi Digital
- Calibra — Ask Not ‘What’ But, ‘Why’? by Meltem DeMirors
- Why is Monero a Weak Privacy Argument by Mohamed ElSeidy
- The Golden Ratio Multiplier by Philip Swift
- The High Yield Bond Market is the Best Parallel to Crypto by Jeff Dorman (Arca)
- Thoughts on Libra “Blockchain” by Jameson Lopp
- The Libra Masterplan by Eric Wall
- Overview of Layer 2 approaches: Plasma, State Channels, Side Chains, Roll Ups by Alexander Skidanov
- How Set Protocol Works Under the Hood by Anthony Sassano
- The Full Circle Hypothesis by Mario Laul (Placeholder)
- White Paper Deep Dive — Move: Facebook Libra Blockchain’s New Programming Language by Lee Ting Ting
- We’re All Default Keynesians Now, and How Bitcoin is Changing That by Citizen Bitcoin
- Unpopular Opinions in Crypto by Matt Lucas
Tweets
- For the 1 year anniversary of Long Reads Sunday (LRS), curator Nathaniel Whittemore treated us to a thread covering the top stories of each LRS since its launch
- Evan Thomas’ thread breaking down the latest developments regarding Quadriga exchange and its supposed fraudulent operations
- Anthony Sassano’s “master-thread” that aggregates all of his DeFi Spotlight threads
- Vijay Boyapati’s thread comparing the recent Bitcoin rally to its previous four major hyper cycles
- panek’s 101 on the value proposition of crypto assets
Listens 🎧
- What Bitcoin Did: Udi Wertheimer on Navigating Bitcoin
- Chain Reaction: DARMA Capital’s Andrew Keys and James Slazas: $100M Ether Fund Launches — Largest of 2019
- Unchained: Not Sure a Cryptoeconomic System Will Work? Gauntlet Can Help
- Off the Chain: Misir Mahmudov, Analyst at Adaptive Capital: Why Bitcoin is Stored Time
- Unconfirmed: Libra’s Dante Disparte on Why We Should Trust a Financial System Designed by Facebook
- Blockchain Insider: Libra: Facebook’s world domination
- Base Layer: Pierre Rochard (Bitcoin Advisory)
- Epicenter: Hayden Adams: Uniswap — An Automated Decentralized Exchange for Ethereum
- Click here to apply: Jill Carlson thinks we should take more walks
Views 🎥
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