Examining a brief set of metrics for Bitcoin: Net Flow of Coins to Exchanges, Sum of Coins on Exchanges, Annual Inflation Rate, Bitcoin Price, and Daily Dollar Denominated Volatility – what do these look like so far, and where might they go over time?
Annual Inflation Rate is the metric with the least stochasticity; the inflation rate is programmed into the Bitcoin protocol. The trend is asymptotically approaching zero with the last coin set to be mined near the year 2140.
Net Flow of Coins to Exchanges flow of coins to exchanges (or away from) could be leading indicators of where price is heading. While coins on exchanges continued to increase in the early years of the monetary network, recent observation suggest that this trend is declining, as the rate of bitcoin adoption has succeeded the relative rate of new coin creation.
Sum of Coins on Exchanges Related to the net flow of coins, sum of coins gives a different perspective of the open market of available coins. This sum of coins peaked with the March 2020 capitulation, and has had strong declines since. If the inflection point of network growth exceeding new coin creation has been hit, its likely that this will be the all-time high of coins on exchanges. I expect this trend to follow a log-normal distribution curve as time goes on; I expect the sum of coins to continue to decrease, but the rate of decrease to decrease over time as well.
Daily Dollar Denominated Volatility – A major criticism of Bitcoin’s use-case as a currency is of its volatility relative to the cost of goods in services in the economy. On the chart above, I’ve displayed the daily volatility (%∆ in $/btc compared to the previous day) as a percent daily change on the y-axis, and aggregated each year of that data over time on the x-axis. The volatility (relative to USD) is asymptotically declining as the asset matures.
(Data for these views were pulled in December 2021)