Crypto prices may be going down, but adoption is higher than before

Prices may have fallen significantly, but blockchain analysis reveals that cryptocurrency made significant progress adoption-wise during the last bull market.

Gabriel Halm — researcher at blockchain data service provide IntoTheBlock — showed in a Dec. 2, 2022 report that despite market turmoil cryptocurrency adoption is clearly moving forward.

While cryptocurrency prices fluctuate wildly, Bitcoin, altcoins, and blockchain technology have achieved higher and higher degrees of recognition and adoption in numerous industries. This is of the utmost importance: the prices can swing as much as they can, but as long as the number of applications and users keeps growing, so does the actual — not speculative — value of this space as a whole.

One of the proposed ways to estimate the value of a blockchain/cryptocurrency such as Bitcoin (BTC) or Ethereum (ETH) is Metcalfe’s law. This formula, formulated in 1993, states that the value of telecommunications networks is proportional to the square of the number of users participating in the system.

Of course, in the case of cryptocurrencies, such a view would be simplistic since — unlike most networks — those systems also feature their assets with their complex features, such as crypto incentives, issuance rates, and ecosystems. Despite this, it would also be inadvisable to consider Metcalfe’s law irrelevant to cryptocurrencies.

While not the whole story, Metcalfe’s law still applies — although to which degree is hard to determine — since the number of users determines the utility and a utility-derived demand base for cryptocurrencies. This demand is much more stable than speculation-derived demand since it is much less dependent on market forces.

It would be hard to attribute much of a value to Bitcoin if only a single person used the blockchain, other than possibly the value that this person would attribute to an inefficient but reliable decentralized database. With the number of users increasing, we can attribute to the network at least the value that its users recognize in being able to transfer value between each other without intermediaries or gatekeepers.

Of course, things get even more complicated when we consider the additional features of multi-signature addresses and smart contracts, including decentralized finance, non-fungible tokens, and all sorts of decentralized applications.

One straightforward way to determine the activity level on any given blockchain is by just looking at the number of active addresses on any day. Of course, this method could be better and allows for disturbances such as spam and activities such as airdrops that do not represent a marked increase in adoption but significantly increase the number of transactions. Still, it gives a good general idea of progress over time.

When it comes to Ethereum and Bitcoin, the number of daily active addresses quickly dropped after the market’s all-time highs were reported in May 2021. Still, this number stabilized quickly and has kept consistent levels ever since.

Compared to pre-March 2020 levels, current daily active addresses data shows a 36% increase for Ethereum, with about 327,000 addresses active on March 8, compared to 514,000 on Dec. 1, 2022. Similarly, Bitcoin sees a gain of approximately 20.6%, going from 826,000 on March 9, 2022, to 1.04 million on Dec. 1, 2022.

The increase in active addresses reported after the last bull market hit its high in November 2021 shows that the market made some real progress rather than just going through a speculative boom and bust. Despite the fall of FTX and Alameda Research causing great mayhem, the activity levels are still higher than before the bull market started.

Looking at the previous bull and bear market cycles, we can observe that both Ethereum and Bitcoin have enjoyed significant gains in active addresses from the beginning of 2017 until now. Still, it is also noticeable that the rate at which activity on both blockchains has increased has slowed from the previous cycle to the last. This suggests that the people who could more easily be convinced to use those systems are already on board.

Growth may speed up again — possibly reaching unprecedented levels — if ease of use is significantly improved or a new killer application is developed.