BIS finds Bitcoin on-chain transfer estimates vary sixfold

Researchers at the Bank for International Settlements found estimates of Bitcoin on-chain transfer values can differ by as much as sixfold depending on how transactions are measured. Much of the gap comes from how change outputs and transfers back to the sender are treated.

When a Bitcoin user spends coins, leftover funds are often returned to the sender as a change output. Counting those change outputs as separate transfers raises measured transfer values because the funds did not move to another party.

The discrepancy applies to on-chain transfer values rather than trading volume on cryptocurrency exchanges. The study also found that conventional market capitalization has at times been up to four times higher than realized capitalization, which values each coin at the price when it last moved.

The BIS analysis drew on roughly 100 billion blockchain records across Bitcoin, Ethereum and Tron to compare measurement approaches and their effects on commonly used metrics.

On Ethereum, the large number of smart contracts complicates classification. Of about 67.5 million active contracts examined, roughly 54 million could not be categorized using the study’s classifications, limiting the ability to interpret on-chain flows and assign them to specific uses.

Stablecoins present additional measurement challenges because the same token can be used differently across blockchains. The study found USDT on Ethereum was more closely associated with decentralized finance activity, while USDT on Tron appeared more linked to payments and store-of-value uses. In 2022, more than 20% of USDT on Ethereum was held by smart contracts, compared with about 1% on Tron.

Some analytics providers apply filters to separate raw blockchain activity from adjusted measures intended to better reflect economic usage. Visa’s Onchain Analytics dashboard, using third-party data, showed $6.4 trillion in total stablecoin transaction volume across tracked networks over the past 30 days and $313.1 billion in adjusted volume after removing likely routing, internal exchange operations and other distortions.

“Metrics such as transaction volumes, market capitalisation and total value locked often suggest a degree of accuracy that is not supported by the nature of the underlying data,” the researchers wrote.

The report states that on-chain indicators should be treated as noisy approximations rather than direct measures of economic activity.