Welcome to our new Bitcoin on-chain metrics section for our blog. For the next seven editions I’m going to talk about 7 metrics that every interested Bitcoin investor should track. I want to mention that I got this list of metrics from crypto investor Spencer Noon who you should definitely follow.
The metric we will discuss in todays newsletter is “Daily Active Addresses”. The reason we look at ACTIVE addresses and not total number of addresses is because many addresses in the full total may be unused and have 0 balance over their lifetime. The process to create a Bitcoin address is very easy which is why total address numbers can easily be misrepresented.
Just like evaluating a start-up, daily active addresses represents user growth over a period of time. Anyone actively using an address is considered a user of the Bitcoin network.
Above we can see the growth of Bitcoin active addresses since its inception compared to the price of BTC in black. The light blue lines show periods where price peaked for that time period and how active addresses compared.
For each price peak so to did the number of active addresses. However, if you look closely you will realize that after every peak more active addresses remained on the network from the time period prior to the peak. This has produced a steady increase in users over time.
This is important for two reasons.
Firstly, as Spencer Noon writes, peak periods are times when the most speculators are on the network. As price hits parabolic state more retail investors come onto the network creating more active addresses. This is why it’s important to get your Bitcoin prior to the parabolic state so you can sell into euphoria when active addresses and price are reaching peak numbers.
Secondly, for those that say Bitcoin is too volatile are forgetting about network effect. Since Bitcoin has a limited supply, as more demand enters price increases rapidly creating more buzz and interest. These volatile periods are what brings more people onto the network and increases active addresses.
Once users make the leap into Bitcoin, more and more stay and realize that this hard capped store of value that can be sent anywhere in the world within minutes is pretty cool!
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