In a paper published this week, Tuur Demeester’s US crypto fund, Adamant Capital, suggests two new ways of determining the relative market value of Bitcoin.
One measures investor sentiment; it’s called Relative Unrealized Profit/Loss Ratio. HODLer Position Change (HPC) is perhaps more interesting. Adamant finds HPC by measuring blockchain “liveliness.”
They explain the concept as such:
“A blockchain where all the coins move within a single block has at that moment a Liveliness of 100%. A blockchain of two years old with no new block rewards, and where exactly one year ago all coins moved within a single block and no transactions moved since, would have a liveliness of 50%. In other words, the measure fluctuates relative to the total lifespan of the blockchain.”
The tool assigns a lower value to cryptocurrencies where there is a high amount of pre-mined coins. Of these types of chains, the paper says:
“Liveliness can be used to weight market cap if comparing cryptocurrencies, as it will be close to zero for currencies that have inflated market cap through pre-mined coins or wash trading of the same few units.”
The actual value of cryptocurrencies is extremely difficult to measure. There are numerous factors to consider. What real value do hodler coins have? And if human error destroyed it? Is it an infinite value, no value at all, or somewhere in between? The blockchain can’t provide such data. Tools like Adamant’s “Position Change” are necessary to help humans fill this gap in knowledge.
Adamant’s research makes some interesting conclusions, such as the fact that significant hodler coins actually move around during price spikes. They dub this “insider trading.” They also found that Coinbase has a significant influence on their metrics, writing:
“For example, one anomaly in the graph is the recent negative position change of meaningful Bitcoin savings (Dec 2018). While at first sight this is worrisome, we found evidence suggesting that a significant part of the move stems from Coinbase reshuffling around 5% of all BTC in circulation.”
Large price movements mint new hodlers, they conclude. Could it be that coins move to change addresses and stay there after a sale is made? This seems more likely than a mass of incoming traders and acquirers becoming hodlers. The “hodl” mentality is not a universal one by any stretch. While many people view Bitcoin speculation as a long-term hedge – which is the view of Adamant Capital – plenty more enter the market during times of extreme volatility with an eye toward buying and selling.
Adamant believes they have “meaningfully contributed to the valuation debate” through the contribution of these new metrics. However, the market is still too nascent to truly value it. The liquidity of the market is a true question mark – it’s literally impossible to sell the entire supply of Bitcoin.
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