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.
It may be too soon to call that the activity bottom, but it’s worth watching.
Ripple (XRP-USD) was very active in the beginning of 2018, much like ETH was. Interestingly, XRP seems to be following a similar pattern with activity levels falling until late October, then possibly bottoming out and turning around as well.
Litecoin (LTC-USD) has proven that it still dwells in the shadows of Bitcoin (BTC-USD)(COIN)(OTCQX:GBTC). The activity levels are quite depressing on the LTC blockchain, indicating that the market may need to turn before this trend reverses.
Dash (DASH-USD) has made inroads in Venezuela, and continues to be an interesting project. However, a large stress test they ran near the end of 2018 has somewhat skewed their transaction count results.
Decred (DCR-USD) is looking a little more rosy, with activity levels holding up since April. Notice here that the price has continued to fall, but the network has continued to grow. This is a different pattern than we saw with LTC, ETH, BCH, and XRP.
Things are looking a bit better for Monero (XMR-USD), the first name in privacy coins. Here we see that divergent pattern from earlier, where the network starts growing again despite the price action.
I was excited about the news that Monero was being added to Ledger Nano S devices. However, getting it set up is still quite complicated compared to adding other cryptocurrencies. I think once this obstacle is overcome, more people will be looking to take a position.
Verge (XVG-USD) usage has been heading straight into the dumpster all year, yikes! I’ve added the red line because the light blue color doesn’t stand out very well.
Digibyte (DGB-USD) may have had a bottom in late October, around the same time that XRP seems to have bottomed out.
Cardano (ADA-USD) is one of the newer cryptos to hit the scene. Despite the hype surrounding the project, activity levels dropped into the hundreds of transactions per day as recently as November. Are we seeing the divergent pattern emerge?
Russian blockchain platform Waves (WAVES-USD) seems to be emerging from an activity slump as far back as the end of August. But despite the activity increases, the platform is now processing around a measly 4k transactions per day, compared with the 100k it was during peak activity levels (which occurred in April).
I used to be very excited about the Maid Safe (MAID-USD) platform. However, their development has been excruciatingly slow and activity levels have now dropped into the abyss. With less than 30 transactions per day, this project is basically on life support.
Bitcoin Private (BTCP-USD) just launched this year, but it doesn’t appear to be going anywhere fast. Activity levels have fallen by 80% over the last ten months.
Tron (TRX-USD) has been going bananas since they departed from the Ethereum network. The number of transactions per day is now in the millions.
Tron deserves a closer look, so let’s check in with DappRadar.
It seems that gambling is the killer dapp for Tron, with the top seven apps ranked by 24/hr activity all being from the same category.
If the figures are to be believed, EOS (EOS-USD) is now the most active blockchain project with daily transactions that are nearly twice that of Tron.
Since EOS is a dapp platform like Tron and Ethereum, let’s check in on the most popular dapps.
Much like Tron, EOS’s bread and butter is gambling with one notable exception: EOS Knights.
The game actually has a decent rating, but I haven’t tried it myself. If you have, post a comment below and let me know what you thought of it.
Stellar Lumens (XLM-USD) seems to have bottomed out in activity back in March or April of 2018. However, for the market cap of this coin the number of daily transactions is surprisingly low. Stellar is ranked 6 in market cap, but is only producing one thousand transactions per day?
Ah, Dogecoin (DOGE-USD). I’m pretty sure this is the only coin whose price has zero correlation with the activity levels.
With 35k transactions per day and a price less than $0.0025 per coin, Doge is the cryptocurrency that proves sometimes laughter is the best medicine.
PIVX (PIVX-USD) may be small but it is one of the few cryptocurrencies that has higher activity levels today than during the peak of the bubble.
Ethereum Classic (ETC-USD) is an interesting beast. I think this project is showing some good signs of life.
And then there’s Bitcoin. As we’ve discussed in the past, activity levels on chain declined sharply after the bubble burst, but they have been growing again since March/April of this year.
I don’t recommend buying cryptocurrencies based off any one metric. But if you were on the fence about this project or that, increasing activity levels during a bear market is a good sign. That doesn’t mean that activity can’t be gamed, I’m sure some of this volume is fabricated even if it does happen at the expense of paying transaction fees. Furthermore, some projects are likely more manipulated than others.
In general, the larger and older the project, the more difficult it is to trick the crowd. Therefore, I would urge caution with projects like EOS and Tron which seem to be dominating the market, and suggest that boring old Bitcoin might just be the most solid bet in the whole space.
If we see that the price of a cryptocurrency is being beat up while the network is growing, this is typically a good sign. But like I said before, this information is just one piece of the puzzle – something to think about.
This article was published first in Crypto Blue Chips.
Disclosure: I am/we are long BTC-USD, ETH-USD, ZEC-USD, LTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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