Crypto Basics Crypto Metrics

Bitcoin, Ethereum, Crypto: Active vs New Addresses

Active vs. new addresses is a metric measured on-chain. We can use this metric to perform a technical analysis of the asset’s behavior in the market and to predict possible price changes.

Did you know that

By July 2021, Bitcoin had just over 37 million total addresses with a balance of more than zero. Facebook reached the same number of users during the second quarter of 2007 just three years after its launch.

What are Active and New Addresses

First thing’s first: what do we mean by an active address?

According to Glassnode, an active address is one that has sent or received a successful transaction within a set time period. On-chain transactions are visible on the blockchain, which operates as a public distributed ledger. On the public ledger, we can observe and analyze the activity of investors through a massive set of data which the figures are extracted from.

Calculating Active and New Addresses

Performing market analysis using on-chain metrics, like on-chain volume, makes sure the data is reliable. Information on the blockchain is incorruptible and data can be extracted in real-time.

That said, on-chain data excludes off-chain data. So if a user makes a transaction through an exchange like Binance or Krakern its considered off-chain and won’t show up in the figures. As a result, inferences about active addresses often include estimates so you should always use other metrics to shore up your conclusions about investor behaviour.

To visualize this metric, you can collect the data for a cryptocurrency on a chain, which involves running a node. When we run a node, we save and maintain a copy of the ledger. If you are not a computer expert and do not know how to run a node, you can visit an analytics website, where you will be provided with one or more graphs with all the information.

What Addresses can Teach us

  • Active and new addresses tell you how healthy a network is. This metric shows you network growth and contraction across time. It’s a way to know how many users are utilizing the blockchain and whether a project is attracting new investors.
  • Active addresses work as a bullish indicator. So now, knowing that increasing numbers of active and new addresses are good news for a blockchain, let’s analyze their impact on the price. 

Back to the foundations of the economy, if the demand for a product increases while the supply stays the same, the price goes up. Likewise, if a network sees a rise in addresses its cryptocurrency will be less readily available. Therefore, the cost of the particular coin could go up!

  • Active addresses give us confidence. For all the projects that have limitless supply, like Ethereum, developing a high amount of active addresses is crucial. If these networks have a lot of transit, that’s a sign of scalability. The cryptocurrency gain value for its utility instead of its scarcity. Hence, active and new addresses give you trust to invest in a project.

Even for coins with a limitless supply like Ethereum…. (sentiment?)

Final Thoughts 

To conclude, Active vs New Addresses helps investors to analyze the crypto market at the macro level. It shows evidence of network development and indicates whether a particular cryptocurrency can hold its price.

However, this metric just provides a snapshot of total users as it includes estimates for off-chain data. Think of this metric as one more piece of your price prediction puzzle rather than the be all and end all.

The more information we possess, the more powerful we are… Enjoy your trading 🙂

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