At the beginning it was always intended that Bitcoin’s user growth and Bitcoin price should move in tandem. Lately this has proven to not be the case as Bitcoin price has been left in the dust by the user growth over the last eight weeks.
The 30-day average of active addresses on Bitcoin’s blockchain is at a total 664,064 as of 16 March. This is up 17% from 20 January. In comparison, Bitcoin’s 30-day average price only increased by 1% during the same period. The robust user growth is seen as market confidence in the coin by investors. The flip side is that the active addresses count tends to rise even when long-term dormant “HODLers” move out of the cryptocurrency and into fiat, so an increase in price in tandem with user growth is not necessarily a reality.
An accurate measure is the network volume and the transaction amount to active addresses ratio (TAAR). This is more comprehensive and explains how network activity impacts Bitcoin price.
The divergence between active addresses and Bitcoin’s price has become quite large, unlike in 2018 when the two moved through the highs and lows alongside each other. Although the divergence has been seen in the past. The active addresses maintained notable growth throughout the entire bear market that spanned nearly two years from 2014 to early 2016. This could imply that active addresses may not be the most accurate predictive metric for Bitcoin’s price.
The 30-day average of Bitcoin’s network volume has a much stronger relationship with the price of BTC/USD than the movement of active addresses. The 30-day average of transaction volume has been accurate in identifying Bitcoin highs and lows.
The 30-day average of network volume has increased approximately 27% while Bitcoin’s average price increased just over 8% from $3,568 to $3,862 over the same measured period.
The TAAR metric acts as an “equilibrium” gauge of Bitcoin price to fundamentals valuation. It was first introduced by the founder of Pugilist Ventures, Chris Brookins. The TAAR metric gauge is an equilibrium where transaction volume and active addresses both represent “quantity and quality” growth of the bitcoin network.
Bitcoin price market seems to react positively when the TAAR is in an uptrend and reacts negatively when it is not. Currently TAAR is still in a downtrend and has deviated from Bitcoin’s price trend, indicating the fundamental metrics that measure the quality and quantity of activity on Bitcoin’s blockchain is not at equilibrium with its price.
Active addresses and Bitcoin price has of late experienced a complete parting of ways in terms of movement. Luckily this is not the full picture and the amount of funds passed through the blockchain, known as network volume, adds to the picture showing how much is being transferred, not just how many accounts are conducting transactions. When all this is taken into account, it can be seen that Bitcoin’s network activity has room to grow before confirming a bullish effect on the market.
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