The 2018 bear market has seen bitcoin’s price tumble to new lows not seen since 2017, with the latest meltdown defying various predictions about an end of year rally.
Bitcoin began the year trading at prices close to $17,000 but has since seen most of these wiped off in a year where the crypto market has appeared to be in tightening loop of perpetual downfall.
A confluence of factors including regulatory uncertainty, several exchange hacks, and the divisive Bitcoin Cash hard fork only added to the effect of weak hands fleeing the market as BTC prices plummeted.
Despite the steep price decline and calls to the effect that bitcoin is ‘dead,’ network fundamentals remain very strong. A peek at bitcoin’s network performance indicates there is rising daily transactions, number of active unique addresses and estimated daily transaction value.
According to Blockchain.com, BTC usage has grown over much of the current when compared to data from 2016 and pre-price boom 2017.
The information one can glean from all these factors is that there is real growth in demand for BTC and that its fundamentals have continuously improved despite the coin’s market performance.
Bitcoin’s Daily transactions
Bitcoin is still at a very early stage of adoption and admittedly continues to face scaling hurdles that have restricted to transactions to just about 7 per second.
Despite this limitation on the network, the network’s daily transactions have increased dramatically in the last few months after dropping off at the beginning of the year.
In 2016 and much of 2017 bitcoin’s daily transactions averaged below 250,000, but steady growth in the latter years of last year pushed this above 300,000 daily transactions which reached a peak of 425,000 confirmed transactions on January 4, 2018.
Daily transactions dropped to a low of 135,000 in April (still much higher compared to values seen in 2015 and early 2016), but has since experienced steady growth, regularly hitting close to 300,000 transactions this December.
The trend is likely to continue, especially given the impact of off-chain scaling solutions like the Lightning Network.
Bitcoin saw transactions drop by 68 percent in January.
However, at an average of 280,000 transactions for the last three months, bitcoin’s daily transactions have increased considerably and are just 30 percent down on par for the year.
In comparison, BTC’s price has dropped by about 80 percent since hitting its all-time high of $20k.
Bitcoin daily transactions- if we exclude 100 of the largest and most popular addresses controlled by exchanges and other large holders- have grown considerably in 2018 after slumping to a new low in January.
There is strong growth witnessed among these groups of users too. According to Blockchain.com, there has been a steady growth in the number of transactions among small-scale daily users that now averages above 250,000.
That figure is double volumes recorded at the start of 2016, which shows that despite the price decline, growth has been steady. It is noteworthy that this data is a more accurate representation as it is not skewed by exchanges whose large transactions can distort trends.
The number of unique bitcoin addresses has also experienced massive growth in the last three years. Beginning in 2014, the number of unique addresses started increasing at a steady climb before an exponential growth saw figures spike in late 2017 and early 2018.
Much of the growth was at prices lower than current prices, with a 2017 study estimating the number of bitcoin wallets around the globe to be between 22- 30 million. Fundstrat’s Tom Lee recently put it at about 50 million.
Current data, however, puts that figure at 31.5 million as of December 17, 2018, with strong growth witnessed throughout the year- rising from about 21 million in January.
Unique daily active addresses, according to data from Blockchain.com, currently stands at about 370k. On January 4, the number of unique bitcoin addresses stood at 1,054,511 but dropped dramatically to about 311 thousand by April this year. Ostensibly, BTC prices also fell remarkably during this period.
Notably though, having over 300 thousand unique addresses was still much higher compared to figures recorded in January 2016 and January 2017.
Percentage-wise, the number of unique active addresses has dropped by 60 percent in 2018, while bitcoin’s price has plummeted by about 85 percent in the same period.
The difference is not very big, but it shows that bitcoin’s users (hodlers) are intact and could make a difference in BTC performance in the long term.
The overall trajectory for the last three years suggests strong growth, with the possibility of an even stronger long-term uptick.
Growth is expected, especially as cryptocurrency prices recover and cryptocurrency benefits from regulatory clarity, the influx of institutional investors and consumer protection measures like those espoused by U.S. Congressmen Ted Budd and Darren Soto take root.
More and more people are getting onto bitcoin use despite the drop in prices, contributing to the growing number of active addresses.
Several startups, including Australia-based BTC.com.au, LivingRoomofSatoshi, TravelBit, and Bitcoin payments processor BitPay, have reported an increased number of BTC users on a daily basis.
BitPay CEO Stephen Pair recently told CNBC’s Squawk Box:
“I used to say 10 years, but now I think it’s more like three to five years until you can go into a restaurant, a retail establishment, and everybody’s going to expect that that store will be able to accept a blockchain payment.”
Estimated USD Transaction Value
Research suggests Bitcoin’s usage as a payments network has dropped significantly in 2018 in tandem to the falling prices. Studies have shown that BTC’s use in commercial transactions is down by nearly 80 percent, which is similar to the drop experienced in its price.
The same can be said of the estimated daily USD transaction value, which has dropped considerably over 2018. On January 4, transaction value in U.S. dollars topped $4.05 billion but dropped to about $700 million a week later as prices began to tumble.
Estimated transaction value dropped to a low of $246 million in October this year and had fluctuated to averages of below $1 billion.
However, beginning mid-November and much of December 2018, transaction values have hit levels above $1 billion, with $2.7 billion transacted on November 15 and $2.4 billion on December 4.
Compared to the period 2014 to 2016, current transaction values show that 2018 has still seen higher transaction values, a fundamental indicator of strong growth.
Bitcoin has experienced several price crashes over the years, but the 2018 bear market has meant prices have been on a downward spiral for much longer than anticipated.
But with every short-term bump in price, new interest into the bitcoin asset hits the market raising transaction volumes and thus daily movements soar or crash with price performance.
Transaction values swelled in the run-up to the 2017 market boom, with initial coin offerings playing a big part in the spike that followed.
When prices hit all-time highs, a rush of new market entrants and hundreds of initial coin offerings (ICOs) pushed transactions higher. The market crash that followed has also seen a decrease in transaction values which has been exacerbated by the recent market sell-off.
Without a doubt, bitcoin prices have plummeted to new lows seen a year ago. Current prices are streets behind short-term forecasts that put prices closer to a market boom similar to the rally witnessed at the back end of last year.
However, despite the collapse, the bitcoin network has continued to experience significant growth in daily transaction value. The number of bitcoin users is also going to reach figures closer to 50 million if growth patterns continue and that can also mean dollar-value transactions will spike.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.