Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry.
This week, we provide analytics into the rise of the top two tokens, Bitcoin and Ethereum.
While Bitcoin has managed to appreciate 17% in the last seven days, Ether has achieved a whopping 28%, despite increasing less in the last two days. Without a doubt, this price growth has been impressive. The same is the case for their on-chain activity, which has picked up to levels not seen since last summer or even January 2018. Going over Bitcoin and Ethereum’s key on-chain indicators, we can have a better idea of the fundamental growth fueling the recent price run. Let’s dive into it!
Key Analytics Behind Bitcoin’s Recent Rise
As discussed last week, Bitcoin’s on-chain metrics had been turning bullish despite the price stagnating. One key indicator that demonstrated Bitcoin demand had been growing prior to the recent price increase is the total number of BTC holders, as measured by the aggregate amount of addresses with a Bitcoin balance.
As can be seen in the graph above, the number of Bitcoin holders had previously peaked at 30.48 million a few weeks before the anticipated block reward halving. In the following two months, the number of addresses holding BTC dropped slightly and stagnated, signaling a lack of new money entering the market.
This trend shifted towards the second week of July, with the total number of holders hitting new highs as Bitcoin received stamps of approval from major organizations such as PayPal, MasterCard and the US Office of the Comptroller of Currency. While Bitcoin’s price lagged at that moment, the number of Bitcoin holders kept growing to reach almost 31 million.
Similarly, the number of Bitcoin addresses using the network daily had been in an uptrend prior to the price breakout. On July 24, the number of Bitcoin daily active addresses reached a level not seen since January 2018.
Ultimately, the growth in Bitcoin’s daily active addresses and total number of holders acted as a leading indicator, pointing to increasing demand for the top cryptocurrency a few days before the breakout above $10,000 and $11,000. Taking advantage of blockchain’s public nature, we derive crypto-native indicators that can signal emerging trends before they affect price as just described. While there is no guarantee (as with any indicator) that price will follow, on-chain indicators are a valuable addition to any crypto trader’s tool set.
ETH Addresses Making Money Eclipse Total BTC Addresses
A lot has happened in the Ethereum blockchain since the last time ETH was above $300. Through all the developments that have happened in the last twelve months — from a pandemic to a Cambrian explosion in yield farming initiatives — the Ethereum blockchain has managed to accelerate its growth and usage. Leveraging IntoTheBlock indicators, we can dive deeper into key metrics assessing the current state of the Ethereum blockchain versus how it looked a year ago.
IntoTheBlock’s Historical In/Out of the Money (HIOM) indicator analyzes investors’ on-chain positions based on addresses’ average cost for a token, in this case ETH. Based on this, the HIOM calculates the percentage and the total number of addresses that are “in the money,” or profiting on their positions on paper. By comparing variations in the HIOM over time, we can determine buying/selling activity based on the number of addresses profiting at a specific price level.
The last time ETH prices were above $300,13.5 million addresses (less than 50% of all holders) were in the money. Comparing these numbers to the ones observed as ETH surpassed the $300 barrier a few days ago, we see that the number of ETH holders profiting at a price of $310 has more than doubled.
This massive increase signals that millions of new addresses bought ETH below $300. Additionally, since the growth in addresses profiting is greater than the increase in the total number of ETH addresses with a balance, we can establish that approximately 1 million previous ETH holders opted to bring their average cost down.
At the time of writing, 73.24% Ether addresses are making money in their position (on paper at least) at a price of $321. This means that the number of Ether addresses profiting (31.86 million) has now surpassed the total number of Bitcoin addresses with a balance (30.83 million). In other words, more addresses are making money in Ethereum than the total number of addresses holding Bitcoin.
Following the increased growth in DApps built on top of Ethereum, the number of daily transactions on the Ethereum blockchain is now within reach of its all-time high of 1.34 million.
As can be seen in the graph above, the number of transactions has been on a consistent uptrend throughout 2020, despite slowing down in the second half of 2019. While the price of ETH is still lower than the high reached in the summer of 2019, the peak in the number of daily transactions is approximately 25% higher now than what we saw last year.
This growth in transactions highlights the increased demand to use the Ethereum blockchain, pointing to ETH’s utility value as infrastructure for a decentralized economy being significantly stronger than a year ago.
While the number of transactions occurring in the Ethereum blockchain has outpaced the demand to use Bitcoin’s blockchain —which had 329,000 daily transactions over the last seven days— most would argue that Bitcoin is priced at a premium vs. Ether, because many see it as a store of value.
Despite the difficulty of determining the specific metrics to classify whether an asset is a store of value or not, a key characteristic of stores of value is that people believe they will retain their worth. In Bitcoin, the trend to “hodl” propagates store of value properties, as long-term investing removes short-term downward price pressures from trading instead.
At IntoTheBlock, we classify an address with a holding time of over one year as a hodler. As can be seen in the graph below, the number of ETH hodlers has increased by over 10 million within the last twelve months.
Overall, these on-chain metrics suggest that Ethereum may be undervalued, at least in relation to its valuation a year ago. As new addresses have taken the opportunity to buy ETH below $300, existing holders have opted to hodl and in many cases lower their average costs. Finally, Ethereum’s outstanding transactions growth evidence the high demand to use ETH and the thriving DeFi ecosystem built on top of it.
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