Bitcoin On-Chain Analysis 101

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8/7/2022

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On-Chain Analysis

Description

On-Chain Analysis is a unique property of public blockchain networks. Due to the technology implemented in the bitcoin protocol a public ledger of all transactions confirmed to the Bitcoin Blockchain is available for analysis.

Key Concepts

• Blockchain - Historical Ledger Of Transactions
• UTXO - Individual Unit Of Bitcoin
• Transaction - Transfer Of UTXO
• Price - USD Price Per bitcoin
• Supply - Total Amount Of Bitcoin Mined (UTXO Set)

Example Questions

Key Metric Groups

• Bitcoin Network Level
• Bitcoin Transactions
• Bitcoin UTXO Set
• Bitcoin Network Valuation
• Market Sentiment

• How much value is being transacted on the Bitcoin Network?
• How many users are using the Bitcoin Network
• How much Bitcoin does an address contro?
• How long has an address been holding bitcoin for?
• How much have bitcoin miners gotten paid?

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First Principles Of Bitcoin On-Chain Analysis - Blockchain

Overview

• What Data Is Available In The Bitcoin Blockchain?
• Bitcoin Blockchain = Public Ledger
• Blockchain = Time Ordered List Of Blocks
• Blocks = Formatted List Of Transactions
• Transaction = Sending A UTXO (bitcoin)
• UTXO = Unspent Transaction Output = Unit Of bitcoin
• Every UTXO (Unit Of bitcoin) Has:
• Owner
• Amount / Size
• Creation Timestamp

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First Principles Of Bitcoin On-Chain Analysis - Economic Activity

UTXO Creation

Bitcoin Transactions

• A bitcoin transaction contains either a single UTXO or collection of multiple UTXO’s.
• Each UTXO has a unique bitcoin address associated commonly known as the bitcoin address.
• One bitcoin transaction can send to multiple receiving addresses (create multiple UTXO’s) by using a single UTXO or by combining multiple UTXO’s.

Bitcoin Blocks

On-Chain Analysis

• Each bitcoin transaction is a transfer of ownership of bitcoin utxos from one user to another recording:
• Amount Sent
• Time Sent
• Sender Address
• Receiver Address

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• Each bitcoin block contains an ordered list of transactions.
• Once a new block is mined and appended to the bitcoin blockchain the transactions contained in that block are finalized and ownership is changed.

• Changes in the UTXO set each block is the basis upon which all bitcoin on-chain analysis is derived from.
• The Bitcoin Blockchain creates a time ordered list of all economic activity on the bitcoin network.
• Key areas of research on-chain has focused on 5 key areas:
• Network Level
• Transaction Level
• UTXO Set
• Network Valuation
• Market Sentiment

• Every bitcoin block mined creates new bitcoin via the coinbase transaction where a new UTXO is created in a fixed amount rewarding the blocks miner with newly created bitcoin increasing the Bitcoin Networks total UTXO set (bitcoin available).

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• The miner can then send the newly created UTXO to any user on the bitcoin network via a bitcoin transaction.

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Price / Market Cap

Legend

Bitcoin Price – Orange

Bitcoin Market Cap - Blue

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On-Chain Metrics

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Inflation Rate

Overview

• Metric Component
• Circulating Supply
• Block Mind
• Inflation Rate

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• Metric Overview
• Description: The percentage of new coins issued, divided by the current supply.
• Metric Type: Network Health
• Helpful: Adoption

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Circulating Supply

Legend

Bitcoin Price – Grey

Circulating Supply - Red

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Inflation Rate

Legend

Bitcoin Price – Grey

Circulating Supply - Red

Block Mined - Brown

Inflation Rate - Blue

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Transfer Volume

Overview

• Metric Component
• Non-Zero Addresses
• Active Addresses
• Transaction Count
• Transfer Volume
• Change Adjusted Volume

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• Metric Overview
• Description: The total amount of coins transferred on-chain. Only successful transfers are counted.
• Metric Type: Network Health
• Helpful: Adoption

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Non-Zero Addresses

Legend

Bitcoin Price – Grey

Non-Zero Addresses - Pink

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Active Addresses

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Legend

Bitcoin Price – Grey

Active Addresses - Pink

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Transaction Count

Legend

Bitcoin Price – Grey

Transaction Count - Green

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Transfer Volume

Legend

Bitcoin Price – Grey

Transfer Volume - Purple

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Change Adjusted Volume

Legend

Bitcoin Price – Grey

Change Adjusted Volume - Green

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Fees

Overview

• Metric Component
• Hash Rate
• Fees (BTC & USD)
• Miner Revenue

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• Metric Overview
• Description: The total amount of fees paid to miners. Issued (minted) coins are not included.
• Metric Type: Network Health
• Helpful: Adoption

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Hash Rate

Legend

Bitcoin Price – Grey

Hash Rate - Red

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Fees USD

Legend

Bitcoin Price – Grey

Fees USD - Red

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Fees BTC

Legend

Bitcoin Price – Grey

Fees BTC - Red

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Miner Revenue

Legend

Bitcoin Price – Grey

Miner Revenue - Red

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Hodl Waves

Overview

• Metric Component
• Hodle Waves

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• Metric Overview
• Description: Bundle of all active supply age bands, aka HODL waves. Each colored band shows the percentage of Bitcoin in existence that was last moved within the time period denoted in the legend.
• Metric Type: Network Health
• Helpful: Adoption

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Hodl Waves

Legend

Bitcoin Price – Black

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Coin Days Destroyed

Overview

• Metric Component
• Coin Days Destroyed

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• Metric Overview
• Description: Coin Days Destroyed (CDD) for any given transaction is calculated by taking the number of coins in a transaction and multiplying it by the number of days it has been since those coins were last spent.
• Metric Type: Network Health
• Helpful: Adoption

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Coin Days Destroyed

Legend

Bitcoin Price – Grey

Coin Days Destroyed - Blue

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NVT

Overview

• Metric Component
• NVT Premium
• NVT Price
• NVT Ratio

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• Metric Overview
• Description: The Network Value to Transactions (NVT) Ratio is computed by dividing the market cap by the transferred on-chain volume measured in USD.
• Metric Type: Network Valuation
• Helpful: Market Price

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NVT

Legend

Bitcoin Price – Grey

NVT Price - Red / Green

NVT Ratio - Brown

NVT Premium - Blue

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Realised Cap

Overview

• Metric Component
• Realised Cap
• MVRV

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• Metric Overview
• Description: Realized Cap values different part of the supplies at different prices (instead of using the current daily close). Specifically, it is computed by valuing each UTXO by the price when it was last moved.
• Metric Type: Network Valuation
• Helpful: Market Price

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Realised Cap

Legend

Bitcoin Price – Grey

Realised Cap - Blue

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Realised Cap

Legend

Bitcoin Price – Grey

MVRV - Red

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Thermocap

Overview

• Metric Component
• Puell Multiple
• Thermocap
• Market Cap To Thermocap
• Thermocap Multiples

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• Metric Overview
• Description: Aggregate security spend, or "Thermocap", is the aggregated amount of coins paid to miners and serves as a proxy to mining resources spent. It serves as a measure of the true capital flow into the network and is computed as the aggregate coinbase transactions multiplied by the price in USD at the time they were mined.
• Metric Type: Network Valuation
• Helpful: Market Price

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Puell Multiple

Legend

Bitcoin Price – Grey

Puell Multiple - Blue

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Thermocap

Legend

Bitcoin Price – Grey

Thermocap - Blue

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Market Cap To Thermocap

Legend

Bitcoin Price – Grey

MCTV - Blue

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Thermocap Multiples

Legend

Bitcoin Price – Grey

Teal - Thermocap

Green - 4x TCAP

Red - 64x TCAP

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Thermocap multiples

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Risk Reserve

Overview

• Metric Component
• MVOCDD
• Risk Reserve

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• Metric Overview
• Description: Reserve Risk is defined as price / HODL Bank. It is used to assess the confidence of long-term holders relative to the price of the native coin at any given point in time.
• Metric Type: Network Valuation
• Helpful: Market Price

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Risk Reserve

Legend

Bitcoin Price – Grey

MVOCDD - Red

Risk Reserve - Black

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1+ Year Supply

Overview

• Metric Component
• 1+ Year Supply

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• Metric Overview
• Description: The percent of circulating supply that has not moved in at least 1 year.
• Metric Type: Sentiment
• Helpful: Market Timing

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1+ Year Supply

Legend

Bitcoin Price – Grey

1+ Year Supply - Green

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Supply Age Bands

Legend

Bitcoin Price – Grey

1+ Year Supply - Blue

2+ Year Supply - Yellow

3+ Year Supply - Red

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RHodl Ratio

Overview

• Metric Component
• RHodl Ratio

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• Metric Overview
• Description: The Realized HODL Ratio is a market indicator that uses a ratio of the Realized Cap HODL Waves. In particular, the RHODL Ratio takes the ratio between the 1 week and the 1-2 years RCap HODL bands. In addition, it accounts for increased supply by weighting the ratio by the total market age.
• Metric Type: Sentiment
• Helpful: Market Timing

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RHodl Ratio

Legend

Bitcoin Price – Grey

RHodl Ratio - Blue

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NUPL - Net Unrealized Profit / Loss

Overview

• Metric Component
• % Supply In Profit
• Net Realized Profit Loss

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• Metric Overview
• Description: Net Realized Profit/Loss is the difference between Relative Realized Profit and Relative Realized Loss. This metric can also be calculated by subtracting realised cap from market cap, and dividing the result by the market cap
• Metric Type: Sentiment
• Helpful: Market Timing

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NUPL - Net Unrealized Profit / Loss

Legend

Bitcoin Price – Grey

Net Realized Profit Loss - Purple

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Hash Ribbons

Overview

• Metric Component
• Hash Rate

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• Metric Overview
• Description: The Hash Ribbon is a market indicator that assumes that Bitcoin tends to reach a bottom when miners capitulate, i.e. when Bitcoin becomes too expensive to mine relative to the cost of mining.
• Metric Type: Sentiment
• Helpful: Market Timing

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Hash Ribbons

Legend

Bitcoin Price – Grey

Hash Ribbons - Green

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