Bitcoin Average Dormancy: A Measure of Turnover and Trading Activity

TL;DR

This paper introduces a novel metric called Bitcoin average dormancy, derived from bitcoin days destroyed, to measure transaction activity and turnover, revealing insights into bitcoin's trading dynamics and liquidity.

Contribution

It demonstrates how bitcoin days destroyed can be used to calculate average dormancy and relates it to the size of traded bitcoin pools using Little's Law.

Findings

Bitcoin days destroyed can be used to compute average dormancy.

Average dormancy provides insights into bitcoin's transaction behavior.

Bitcoin days destroyed relates to traded bitcoin pool size under certain conditions.

Abstract

Attempts to accurately measure the monetary velocity or related properties of bitcoin used in transactions have often attempted to either directly apply definitions from traditional macroeconomic theory or to use specialized metrics relative to the properties of the Blockchain like bitcoin days destroyed. In this paper, it is demonstrated that beyond being a useful metric, bitcoin days destroyed has mathematical properties that allow you to calculate the average dormancy (time since last use in a transaction) of the bitcoins used in transactions over a given time period. In addition, bitcoin days destroyed is shown to have another unexpected significance as the average size of the pool of traded bitcoins by virtue of the expression Little's Law, though only under limited conditions.