I have argued in the past that the value of a cryptocurrency comes from the network. But how can we quantify the size and health of these networks? In other words, just how many people are involved and how active are the participants? Can we trust estimations of the number of users? How confident are we in looking at trading volume? Is the on chain transaction count reliable?
Each cryptocurrency has its own nuances, which makes comparing any two projects difficult. But if I had to pick a single approach, it would be the on chain transaction count.
Even though the number of on chain transactions is imperfect, at least it does involve paying a fee on some level and the activity is happening in the open. This means that the count of daily transactions across many cryptocurrency projects is possibly the most reliable and fair comparison.
So what happens to activity levels when you enter into a bear market and the price of nearly every cryptoasset takes a nose dive? This is an interesting question because some top projects saw a mass exodus of activity, while others saw a temporary drop but then started to get more active again. This may indicate that some projects are just “floating downstream” while other projects are about more than just the price.
To illustrate this more clearly, we will be looking at the price of 20 popular cryptos and comparing that with the activity levels we saw throughout 2018. Some activity is bound to drop off with a price decline, but not all crypto networks have responded in the same way. Let’s get started.
Ethereum (ETH-USD) has seen activity levels fall most of the year. But the trend may have begun to reverse near October 1st, 2018. By the way, in this chart and all the ones to come the solid line represents the network activity (the seven-day average number of daily transactions occurring on chain) on the left Y-axis. The area represents the price on the right Y-axis.