How Bitcoin’s liveliness and vaultedness show the switch to hodling

Liveliness and Vaultedness are pivotal metrics in understanding the changes in the Bitcoin network.

At their core, these metrics revolve around the concept of ‘coinblocks’. A recently introduced metric from Glassnode, coinblocks represent a specific quantity of Bitcoin associated with a particular time duration since its last movement or transaction. In simpler terms, it’s a blend of the amount of Bitcoin and the time it has remained stationary.

Liveliness captures the network’s activity by focusing on ‘coinblocks destroyed.’ When a Bitcoin is transacted or spent, its associated coinblock is considered ‘destroyed’ as it breaks its previous duration of inactivity. The metric is then calculated by taking the cumulative sum of these destroyed coinblocks and dividing it by the cumulative sum of all coinblocks created since Bitcoin’s inception. This gives a ratio representing the relative activity of the Bitcoin network over time.

Conversely, Vaultedness offers a lens into the network’s ‘inactivity.’ It measures the proportion of coinblocks that remain ‘stored’ or unspent. Mathematically, Vaultedness is the sum of stored coinblocks divided by the sum of all coinblocks created. Alternatively, it can be viewed as 1 minus Liveliness, representing the inverse relationship between these two metrics.

When the Genesis block was mined in January 2008, the Bitcoin network started with a Liveliness of 0 and a Vaultedness of 1. This initial state makes intuitive sense — since no coins had been spent, the network’s activity was non-existent, giving Liveliness its lowest value. Conversely, all coins were effectively “vaulted” or unspent, giving Vaultedness its maximal value.

Immediately after Bitcoin’s inception, Liveliness began its ascent, and Vaultedness started its descent. These trajectories continued until they intersected in March 2014. A subsequent period from July 2014 to April 2017 saw Vaultedness overshadowing Liveliness. However, post-April 2017, Liveliness took the lead and has maintained its dominance. It’s essential to note a trend reversal initiated in June 2021, where Vaultedness began to rise, and Liveliness started to decline.