UTXO Analysis Reveals a Lot About Bitcoin, Litecoin, Dash, and Other Crypto-Assets

Unspent Transaction Output(UTXO) is one those unique architecture elements of crypto-assets that is often ignored in crypto-analytic metrics. From an analytics standpoint, UTXOs are both a unique source of intelligence about crypto-assets but also one that is really difficult to analyze at scale. At IntoTheBlock, we have been working on statistical and machine learning models that extract meaningful intelligence about UTXO transactions. The result of that work resulted in a new section in the platform solely dedicated to UTXO intelligence. Today, I would like to explore some of the key intelligence that we can gain by deeply analyzing UTXO transactions.

A Gentle Introduction to UTXOs

The blockchain universe can be divided into two main architectures for record-keeping of output transactions:

· UTXO-Based: Bitcoin, Bitcoin Cash, Litecoin, Dash….

· Account-Based: Ethereum, Ethereum Classic…

The simplest way to think about UTXOs is as the leftover cryptocurrency change in each transaction. UTXO was initially created as a key component of the solution of the famous double-spending problem. Every transaction creates a new UTXO and the age of the UTXO indicates the block that it was first included in. To some extent, the entire universe of blockchain transactions are just changes to the total UTXO set.

Let’s say today party A would like to transfer 1.5 BTC to party B. Party A has a wallet with UTXOs totaling 1 BTC, 0.75 BTC and 0.5 BTC respectively. The Bitcoin blockchain will assemble a transaction containing the 1.5 BTC and 0.5 BTC as inputs and generate a new UTXO totaling 0.25 BTC as output.

UTXOs as a Source of Intelligence

Beyond being a critical architecture of some of the main blockchains in the market, UTXOs are also a unique source of intelligence. For starters, UTXOs record the time of every transaction in a target cryptocurrency so it can be used as a key dataset to estimate holding/spending trends and other momentum indicators. In that context, UTXOs can be leading indicators of selling/buying pressure as well as help us understand unique characteristics of buyers and sellers.

Despite its richness of information, analyzing UTXO data is far from trivial. Most of the methods that can extrapolate meaningful intelligence about UTXOs requite periodical rescanning of the entire blockchain datasets. Similarly, tracing UTXO transactions overtime can be a computational nightmare.

UTXO Analysis

At IntoTheBlock, we have been working on a series of models that leverage UTXO transactions to detect meaningful insights about the behavior of crypto assets. Let’s look at some of the signals of the initial release.

UTXO Age Streams

IntoTheBlock’s UTXO Age Stream Graph signal provides a time-series analysis of the different UTXO positions over time. For instance, in the case of Bitcoin, there are close to 4 million Bitcoins that have been held over 5 years while close to 480,000 bitcoins are being held between 1 and 7 days.

If we look at the same chart just focusing on the new UTXOs we can see that the trends look closer to the price movements.

That pattern looks consistent even for crazy price movements. That can be seen in the recent analysis of Dash’s UTXOs.

UTXO Created

UTXO Spent

This are some of the initial UTXO signals included in the IntoTheBlock platform. Working with our partners and customers, we have created a very ambitious portfolio of complementary signals that will be released in the next few weeks. UTXOs certainly provide a very unique source of intelligence about the behavior of crypto-assets that hasn’t been widely exploited. Many of the most marked trends in a given crypto are reflected in the UTXO activity in the underlying network. Understanding UTXO trends can reveal fascinating patterns about crypto assets that are impossible to analyze in other asset classes.

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