Published by Morpheus, July 25, 2022

A deep dive into Monero metrics

Monero's bullish case

In this article I intend to illustrate my point of view on what I have been observing throughout this year. I'm building these charts, but so far I’ve only provided simple explanations on each one, leaving conclusions for users. I imagine many would like an in-depth commentary on the current market situation. Since we are entering a period of a mass surveillance society, I have been optimistic about privacy. Monero, however, has a tendency to go sideways, since many use it as de facto money. So, let's see how far the Monero bull run is.

Metcalfe's Law

It all started because of Metcalfe's Law. I always visualized that Bitcoin and Monero were related, in the sense that Monero complemented what Bitcoin lacked. With that in mind, if Monero was a complement to Bitcoin, perhaps it was somehow seen by the market as an extension of Bitcoin itself.
  • “Metcalfe's law states that the value of a network is proportional to the square of the number of nodes, or members, in the network. A network is a set of nodes that form connections with each other and follow a protocol, a set of rules. As more nodes join a given network, the value of that network increases exponentially, because each additional node can contribute value to all existing nodes.”
As we cannot know the number of users of these coins (especially for Monero), we have to try another way. Similar to every piece of information exchanged on a social network, transactions grow exponentially the more users are using a given blockchain. So, instead of looking at the square of the number of users, we can approximate that the value of the network is directly proportional to the number of transactions it has. I mean, this is only true if the coin is decentralized and doesn't have a company behind it, because that would encourage its owners to spam the network so they could trick users into thinking the network had a use case. Therefore, for both Monero and Bitcoin, the number of transactions should be directly proportional to the value of the entire market cap of the coin:
  • XMR.Marketcap / BTC.Marketcap
Should be proportional to:
  • XMR.Tx / BTC.Tx

But when observing the years following Monero’s launch, they weren't proportional, and the main reasons for that are because: a) Monero was launched after Bitcoin, so there was a huge difference in the amount of coins in circulation; b) the 'launch' distorted the perceived fair value, as it spammed the network with transactions.

We could correct this problem by accounting for the total supply of currency. Thus we have to multiply XMR.Tx / BTC.Tx by their supply ratio XMR.Supply * BTC.Supply. Notice that this multiplication does indeed reduce the value of the transaction ratio, as there were less Monero than Bitcoin in circulation, while still maintaining the scale of the result.

To this extent, the relationship looks very similar, but there is still some divergence, especially at the beginning. If we add one more multiplication, we will find that close to the launch of Monero, the relationship between their marketcaps followed the square of the relationship XMR.Supply * BTC.Supply. Perhaps it is because the difference in supply was so extreme, it affected the perceived value much more at that time. Anyway, just to visualize our result:

Now we have a curve that fits the actual XMR.Marketcap / BTC.Marketcap ratio. If we divide both sides of the equation for XMR.Supply * BTC.Supply, we'll get:
  • XMR.PriceBTC = XMR.Supply * XMR.Tx / (BTC.Supply * BTC.Tx)

And then again, another fitting curve. If the chart wasn't distorted at first because of the difference in supply and speculation, we would literally have:
  • XMR.Marketcap / BTC.Marketcap = XMR.Tx / BTC.Tx
Therefore if seems that these coins were behaving as part of the same network. This doesn't happen to any other cryptocurrency in existence. As far as it seems, Monero was being perceived as an extension of Bitcoin. Dividing both sides by XMR.Supply * BTC.Supply results in:
  • XMR.PriceBTC = BTC.Supply * XMR.Tx / (XMR.Supply * BTC.Tx)

Based on Metcalfe's law, the red line should be considered the 'fair value' of Monero if the market was still considering Monero as part of Bitcoin, which it did for quite a while (until early 2019). We can also multiply both sides by BTC.PriceUSD and find the USD value of each Monero:

And we can make the same approximation for its beginning, which fits exactly the curve:

Then by these standards, Monero should be worth around $3,800, or 0.15 BTC, with a market cap of $66 billion. Very cool. I was stunned. But what happened in 2019 that changed that relationship? That's an interesting question. There are a few possibilities:
  • Increased use of other chains to move Bitcoin (like WBTC, most likely);
  • Increased use of layer 2 transactions (most likely);
  • Exchanges paper trading Monero as there is no way to audit their supplies (most likely);
  • Some institution is suppressing the price of Monero (less likely);
  • Bitcoin seeing a massive increase in institutional buyers and speculation (most likely);
  • For some unknown reason, the market has changed its perception that Monero complements Bitcoin (not likely).
My two cents here: as there have been an increasing number of transactions since the beginning of Monero, I rule out the latter possibility. Darknet markets are shifting towards Monero, so it's really going through what Bitcoin has gone through in the past. Thus it's probably the result of a mixture of the other alternatives. To be fair, I'm not a big believer in price suppression. That always seemed a little too paranoid for me, but it's a possibility. Interestingly, in 2019 we saw Binance listing the XMRUSD pair. Also, if there are a lot of BTC transactions on other chains, or layer 2, the relationship XMR.Tx / BTC.Tx is different from the one calculated by layer 1 transactions. If we account for this, Monero should not be worth $3800, or 0.15 BTC, but something less.

Stock-to-flow Model

As Nick Szabo said, “Monero is a good privacy complement to Bitcoin.” Both coins are similar, neither has a controlling company, nor CEO, both are decentralized, both have anonymous creators, and both are fairly distributed proof-of-work coins. As the market realized that Monero was exactly worth its proportion of transactions as if it was part of the Bitcoin network, it follows that if Bitcoin has a stock-to-flow model, so should Monero. When dealing with SF, however, I don't intend to be a hardcore advocate like PlanB, as in my view, the model is just a way of evaluating the project, nothing more. It is not written in stone, and in real life there are many variables that can distort the real value of the currency. Just a few examples: hyperinflation, deflation, wars, or some new bug found in the project, some major player pumping or dumping, etc. These things can happen. Also, Monero is still heading for its second bull market, and we should have at least two cycles to plot the interpolation.

The Stock-to-flow model is based on how much inflation the currency has, so it goes flat after the tail emission. That has been a major criticism of the model. You might ask yourself, what happens if world governments start printing trillions and trillions? Would Monero be left behind and not increase in price? It would totally increase, so this model only works when the amount of fiat currency is constant. The model must take into account the inflation of both sides of the trade, Monero and the fiat currency. To be fair, one idea I've been cooking for some time is that since Monero is perceived as Bitcoin, its Stock-to-flow model would naturally arise from the XMR/BTC pair, not XMR/USD. This is something to think about, and it would mean that after the tail emission, Monero would be flat in value when compared to Bitcoin, not the dollar. If Bitcoin goes up, Monero goes with it. But that's just speculation, so it's not worth plotting this. It's worth mentioning that the infamous 'gray line' is just a fractal of Monero's past price action, and it doesn't fully predict prices, but at least the momentum of local tops and bottoms. People still joke about it. In the Stock-to-flow model, as well as many other charts, I used the price of Monero against Bitcoin as the color of the plotted points. For example:

Price In Sats

The 'cycle on the Bitcoin pair' means how much Monero is worth in Bitcoins. High values should have red dots and low values should have blue dots. This is a way I've found to add even more information to a chart. In PlanB’s charts, he uses colors to demonstrate how far the halving is. For Monero, it makes sense to see how high it is against Bitcoin. For example, if the price against the dollar (Link) is high and the dots are red, it means it might be a good place to sell some XMR. And the opposite should also be true, if the price is low and the dots are blue, one might wonder if it's not time to buy. Looking at this image makes us realize Monero made its 2015-2016 highs at 0.004 BTC as support.

Fractal Multiple

This chart shows how similar the two Monero cycles are. As far as it seems, there are absolutely no major players pumping and dumping, just market behavior. The blue line is the infamous gray line on the SFModel chart, and it's amazing how local tops and bottoms tend to reflect past cycles. The values may differ, as different points in time have different market conditions and different inflations, but you can see pretty much the same structure. For example, this model predicted tops on three occasions, as well as our last local bottom last month. This chart led me to develop its 'poor cousin', the Inflation Adjusted Fractal (Link), which could also predict the price of these local tops and bottoms. However, you can see how extreme this past year has been for Monero and the rest of the market. What this means is that if past behavior could predict future prices, because of its falling inflation, Monero should be worth a lot more. But can it?

Golden Ratio Multiplier

Since Bitcoin has this model, why not Monero? There is not much to be said about this chart, other than that Monero needs to float above the 111 days moving average to become a bull. It has recently crossed that line, but turbulence on the global economy has made it fall again. Sell signals are automatically printed on the chart every time prices exceed 5xMedian 350 days. Monero is very stable so this can take a while.

Competitor Performance

This plot is brutal. I decided to build this one to warn people against investing in high inflationary assets. You can literally see that higher inflation means lower price for the coin. Do you want financial privacy? That's cool, but don't put your money in assets that have high inflation. If you care about that, and there's a privacy cryptocurrency with 0.8% inflation, why on earth would you put your money in an asset with 10% inflation? There is absolutely no point in doing this. This chart calculates how many times you could have multiplied your invested money when all these different coins were created. For every $1 invested in Monero, you could have $30 now (July 22, 2022). For Dash, you would get $3.2, while just 8 cents for Zcash and 1 cent for Grin. Note that this is inversely proportional to the inflation rate, as Monero's inflation is now 0.8%, Dash's 4.6%, Zcash's 10%, and Grin's inflation is 29% yearly. For Bitcoin it is around 1.7% until the next halving. This chart can be seen as a minor evidence that there is no inflation bug in Monero.

One thing to understand is that Monero will have many years of supremacy in the privacy market because there is no way to create a reasonably distributed privacy cryptocurrency without high inflation. You can launch a premined, privacy-preserving shitcoin with low inflation (or even null inflation), or you can launch Monero 2.0 with a fair distribution and proof of work. But any Monero 2.0 must come with high inflation, otherwise it is premined. Then there is no way to magically create a proof-of-work coin with low inflation. Any currency competitor launched will either have high inflation or be centralized, therefore, it is not suitable to be a store of value. There is no way around this. Monero, on the other hand, is a store of value and a privacy-preserving cryptocurrency.

The only 'privacy-focused' cryptocurrency that could now compete as a store of value with Monero is a ‘kind of’ Dash, but Dash is a CEO-driven centralized currency that is not as private as XMR. So no, there will be no competitors for a while. The best competitor left would be Zcash, but it will take many years for its inflation to drop below 1%. In the meantime, Monero will be consolidated as the default privacy cryptocurrency. As the effects of the network on the privacy market are more intense than for transparent ledgers such as BTC and ETH, few people would want to touch the second option.

Competitor Performance

Here you can see Monero is the only privacy crypto that investors are still in profit (+12%) against Bitcoin since the launch. This is yet another consequence of the low inflation rate, plus all the use cases for a truly private coin. An investor would have lost 90% of its Bitcoin if they had bought Dash, 94% for Zcash and 99% for Grin. Again, brutal.

Competitor’s Inflation

This plot shows the annualized inflation rate of each coin. The real inflation rate is in fact lower, since the amount of coins one year from now is lower that the amount calculated by the current rate (since the rate is decreasing). Monero has one of the lowest inflation rates of all proof-of-work coins, if not the lowest.

Return Versus Inflation

All comes down to this. It would take 129 years to double Monero’s supply at this inflation rate, but only 21 years for Dash, 10 years for Zcash and 3.5 years for Grin. Therefore Monero appreciated more than the others. I love this one.

Comparison to Bitcoin

The first chart is the return on capital of each coin, Bitcoin and Monero. It shows how much money one investor would have for each dollar invested when the coin was ‘launched’. The second image is with a shrank time scale, so we could compare Monero as a fractal of Bitcoin. This gives us an idea that Monero is near a bottom, like was Bitcoin in 2019.

Thermocap Multiple

Thermocap multiple is the ratio obtained between dividing the current price of the coin by the accumulated price of each mined coin. It is often used to indicate end of a bull market. The formula is XMR.PriceUSD/(SUM(Daily Reward * XMR.PriceUSD)). The Thermocap Bands are calculated by the current sum of all mined coins multiplied to its price at that current date. The price should float inside this bands. Judging by this chart, we could be near a bottom.

Power law

We’ve seen that as the asset matures, it increases in marketcap, making highs and lows that increase as a curve inside a logarithmic chart, but also that time expands each cycle, making them longer. Since there’s nowhere investors can see the time on a double log chart, I decided to plot it. The channel drawn on it are just suggestions, and they could float around price, or even be a curved line.

Price Deviation

Price deviation shows how much the current price is above or below the 6 months moving average, both in absolute value and in percentage. This can indicate periods of aggressive expansion, as well as bear markets. Below zero are bear markets and above zero are bull markets. It is interesting to see that before switching bear/bull or bull/bear, the price retests several times the moving average, until its movement on that direction lose force, and then breaks to the opposite side. In that sense we can see a bottom starting to form. We can expect some retest of the moving average before going bull, so more sideways will probably happen.

Monero’s Marketcap Dominance

Interesting to see how Monero slowly bled for years after strong a strong period of appreciation. Each coin has a characteristic, perhaps this is what defines XMR. Years of crabbing, until scarcity hits? Since the start of 2022 Monero saw a paradigm shift, with its dominance increasing even with the price decreasing. Monero has been one of the best performing cryptos this year.

Monero’s Privacy Dominance

Privacy Dominance is calculated as how much percentage of the privacy market is dominated by Monero. So, divide XMR’s marketcap by the sum of all privacy cryptos (including XMR itself). This constant increase is just a consequence of the fact that Monero has the lowest inflation on the privacy market, besides being the most trusted one. Remember I wrote above that Monero could consolidate itself as the reigning privacy cryptocurrency? Then again, I expect this one to increase as well. There have been few indicators more solid than this one. Easy to see, long lived increase.

Total Privacy Marketcap

This shows people caring for privacy, then they don’t anymore. As a cypherpunk, I really hope people start caring again, otherwise crypto is no good. But there’s no signal that this trend will reverse, since we are still inside the downward channel.

Monero's Coinmarketcap Rank

Cool chart showing Monero slowly bleeding positions on Coinmarketcap, until a bottom was formed and it became one of the best hedges against Bitcoin. Easily noticeable that its most natural position would be somewhere between 9th to 15th place. Right now it is 28th. King of the crabs.

Transaction Count

The number of users increase almost linearly, and the number of transactions exponentially. This increase in transactions reflect more users inside the network. You can mix this with the increase in subscribers to /Monero/ subreddit (Link) and clearly see a use case. One thing to wonder is, if the number of users keep increasing while decreasing inflation, then there will be a point where the paradigm will shift and scarcity will hit. Monero broke ATH number of transactions twice in 34 days. Total of 42244 txs on June 15th and 46933 on July 19th. This is bullish.

Monthly Transactions

Long term increase in usage month over month. All time high was November 2021 with 916084 with June 2022 ending with 885569.

Transaction percentage

Monero’s transactions divided by Bitcoin’s transactions. Monero has around 15% of the number of transactions Bitcoin has, and this chart is clearly bullish. It will probably break all time high this year.

Monthly Percentage

Calculating that same percentage, but with monthly numbers, we find out that in June 2022 Monero had its highest percentage against Bitcoin (11.8%). Current numbers are sitting so far at 12.3%, which would be another record, two straight months. During 2021 this number never crossed below 8%, which is awesome, considering Monero has only 0.6% of Bitcoin's marketcap.

Transacted Price Deviation

The transacted price deviation is the multiplication between a) the difference in price from the 6 months moving average and b) the percentage increase in number of transactions from the 6 months moving average.
  • TPD = ( Price – Averaged Price ) / ( Tx / Averaged TX )
When TPD is negative, price is below the 6 months moving average, and therefore a bear market. When TPD is positive, price is above the moving average and therefore a bull market. This indicator shows huge spikes in transactions near tops. There are also huge spikes in transactions on capitulation events, such as the one that happened in June 18, 2022. This event in particular was the one that probably saw the highest number of coins changing hands. Capitulation such as these often comes along with price increases. Accumulation occurs with fewer transactions, while price is still below the price moving average. In that sense, we can probably expect yet another bottom to form just like the period following the 2018 November crash.

Transaction Dominance

It’s calculated dividing the number of transactions in Monero’s blockchain and the total number of transactions on the privacy market (XMR + ZCASH + DASH + GRIN). The dominance is slowly climbing up.

Coins In Circulation

There are more Bitcoins in circulation than Moneroj, and that will stay a fact until 2040, when both coins will have nearly 21 million units. The difference is that Monero has a tail emission to subsidize mining, which means block reward will be 0.6 indefinitely, while Bitcoin is capped at 21 million units and will have to rely on transaction transaction fees to stay relevant. More on this subject can be found here. You can check the difference in supply on this chart (Link). It’s possible to see how much will be Monero’s annualized inflation in the next few centuries (Link).

Daily Emission

Daily emission means how much is the daily inflation worth at the current price of the day. It’s the multiplication of daily block rewards by the price in dollars. It is important to note that while the market needs daily injections of $18 million to buy all the newly generated Bitcoins, anyone with only $66k can absorb all daily, freshly mined XMR. If an investor wants to park, for example, $1 million into a privacy preserving cryptocurrency, he would have to buy 15 days worth of Monero’s inflation. In fact, one investor needs only $24 million dollars to buy one year of inflation in current prices, or just 30 hours worth of Bitcoin’s inflation. Monero’s emission is so low, that if each of its subreddit subscribers (264890) bought 0.6 XMR they would take one year worth of rewards out of circulation, because there’s only 262800 new blocks in a year. What would we think then about the massive amount of money in off-shore accounts? If money becomes 100% digital (which seems a certainty, since we are becoming a digital society), how would people hide their purchasing power? There’s simply no way to park a trillion dollars in Monero. This is an infant market.

Reddit Subscribers

It’s useful to look at the number of Reddit subscribers of a certain topic. The growth can evidence an increase in the number of users of that coin. Also, the growth of /Bitcoin/, being higher in percentage than the growth of /Monero/ means that the coin could increase less than Bitcoin. In other words, it could fall against its BTC pair. That was what was happening (Link) on most of the 2019-2021 period. However Monero has only a tiny marketcap when compared to Bitcoin, then when its scarcity begins to evidence, the price increase may attract newcomers and speculators, and then this trend may shift. The number of users on Reddit is probably a lagging indicator, since people tend to get curious after the price already started going up. As an example, the steep climb of Reddit users evidenced the top of the market both in December 2017 and on May 2021.

Subscribers And Transactions

This chart evidences that the number of users increased with a linear curve (left axis is linear), while the number of transactions increased exponentially (right axis, logarithmic). This is why many are bullish on Monero. If XMR.Tx is directly proportional to its price as seen by the example XMR.PriceBTC = XMR.Tx / BTC.Tx, and the number of users keep growing, while transactions are proportional to users squared, then one can expect an even higher transaction count, and therefore higher prices. Or at least that’s the idea, but this is crypto. Anything can happen.

Dread Subscribers

We have seen a massive migration of Darknet markets from Bitcoin to Monero. I'm not in favor of people selling drugs or anything, but we have to admit that the dealer has a lot of skin in the game. He has no one to trust when making decisions, he has to do his own due diligence before accepting clients, otherwise everyone will end up like Ross Ulbricht. Who has more skin in the game than guys who would be jailed for life if proven wrong? Also: ransomware and hacker attacks. No sensible hacker would touch Bitcoin if it wasn’t for the fact that it is not possible to borrow millions of dollars in Monero as exchanges practice fractional reserve and pretend to have it. That's why they charge a premium for accepting Bitcoin. Some people say that “if Bitcoin is tainted and two Bitcoins are different, then sell me the tainted one for a lower price… where is it?” Well here it is. If a hacker charges a higher payment to accept Bitcoin, that means he is paying less for that Bitcoin. But he is paying with his service (in this case, returning the encrypted data previously stolen).

From this point of view, it is only natural that any forum on the Darknet has more activity on Monero threads than Bitcoin threads. As of July 10, 2022, Monero had 7,821 subscribers on Dread (forum), while Bitcoin had ridiculous 85 subscribers. This represents an increase of 8.5% in five months, or 613 new users. Remember one of the first use cases for Bitcoin was being used in Darknet markets? Well, it totally looks like Monero is heading in the same direction.

It seems that many people who call themselves 'libertarians' argue that 'you can't just buy illegal things with cryptocurrencies'. But if you're truly libertarian and want to buy something the government labels illegal, will you pay your dealer with gold stones? Or with Bitcoin, which is even worse? Or do you accept that if the government labels something random as illegal, you have to comply? A free man doesn't ask permission, does he? It just means you're not really a libertarian. The government can label anything illegal, and if money goes 100% digital, how would you be free in the first place if you don't use a form of money that preserves privacy? You pay people with gold stones or Monero. That's it.

Coincards Usage

Coincards is a service where people buy store coupons that they can give as gifts or use to purchase products and services. Since Coincards started accepting Monero, there has been a huge increase in the use of this currency. In less than a year, Monero has gone from 8% to 28% market share (250% increase), while Bitcoin shrank from 45% to 34% (24% decrease). Ethereum also decreased from 24% to 15% (down 38%). As community member John Foss says, 'Monero is eating Bitcoin's lunch'. This is happening with Coincards because Monero is fungible, which means that every two Monero are exactly the same, therefore there is no discrimination. Bitcoin is not fungible, two Bitcoins are never alike as each comes with its previous history. Any store that accepts Monero should see an increase in clients, as Monero is what money should be. The merchant acceptance chart shows similar patterns (Link). Monero was the currency with the biggest increase in merchant acceptance percentage (Link), as well as the second largest in absolute numbers (Link). These numbers alone must be ringing bells left and right within the cryptocurrency community.

We’ve seen a lot about Monero and Bitcoin on this article. There’s not much information that can be gathered about Monero, since it’s a privacy preserving cryptocurrency, but we looked into 35 charts. The website provides already 73 possible plots about it. With these information we can assume that even with a strong bear market along 2021-2022, Monero recently started to print some good results, such as increasing its dominance over the whole market and increasing its rank on Coinmarketcap. Monero is in the process of consolidating its absolute dominance on the privacy market, and that’s possible thanks to its battle proven tech and scarcity. Its inflation is among the lowest on the market, and there won’t be any competitor along many years (in terms of store of value plus privacy). Monero has also been printing a high number of transactions, increasing in percentage also against Bitcoin. If history and math are any good, this increase in transactions should mean the coin is now more valuable, and this can be seen as the inevitable result of the increase in number of users. The number of subscribers to the /Monero/ subreddit is probably a lagging indicator, therefore when the plebs notice about it, it will be too late, there won’t be many XMR for sale. History has a tendency to repeat itself. Perhaps Monero is trailing the destiny meant for Bitcoin.

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