The Most Important Crypto Chart
Today I want to talk about what I think is the most important chart in all of crypto. Here it is.
What you’re looking at here is the 200-day moving average of the total number of daily active addresses in use for all of crypto over the last twelve years. To recap what an active address is, any time cryptocurrency is sent from one place to another there are at least two addresses involved. One address from the sender and one from the receiver. There could be more than one from each party because of smart contracts and change addresses, but we can set that aside for now.
At the highest level, we can think about active addresses as market participants. These could be actual people exchanging with each other, or it could be some automated system that has integrated with a crypto (any crypto) that is executing on their behalf.
So why does this chart matter so much? Let’s pick out a few key features. The first thing you probably notice is that this is a time-series chart, meaning that the x-axis is time. On the y-axis we have the total number of active addresses. Each series of data on this chart has been averaged over the trailing 200-days, and the values have been stacked on top of each other.
As we move from the left to the right of the chart we can observe an increase in the total number of active addresses. The red color on the bottom represents the Bitcoin network, and the next color on top of that (the greenish hue) represents the Ethereum network. You will note that in the past, the red color was pretty much all there was, but now the ecosystem displays an incredible variety of colors. These colors represent other cryptos, such as Litecoin, Stellar Lumens, and such.
Now that we’re clear on what this chart represents, why did I say it’s probably the most important chart in crypto? Put plainly, what I see when I look at this chart is a long-term trend that’s undeniable. For whatever reason you want, the world is moving more and more into crypto. People that come tend to stay, and more people are joining all the time. I like the 200-dma because there’s a lot of volatility in the daily data and zooming out helps to put things into perspective. Speaking of which, let’s flip the y-axis into log scale for a minute.
Using log scale for the y-axis changes several things about how this data is displayed. First of all, the left side of the chart is now full of color. Why is that? What’s happening here is that all that time before 2014 which seemed to be so vacant before was actually just as dynamic in terms of constant log-scale growth. Back then the rate of growth was absolutely insane while the numbers were exceedingly tiny. For example, in 2010 the 200-DMA was right around 100. Two years later it was up to 20k. That’s an increase of 200x in two years. As time marches on, the growth rate of crypto is slowing, but the numbers are now much larger. For example, in the last year we’ve added a million users, when the first million users took a whopping eight years to stack up.
One final note on the chart above, with a log scale stacked chart it will appear that the majority of transactions are happening on the Bitcoin network, but that’s a mere coincidence of the fact that the series is first in the pile. The higher layers in this case are more easily understood in the linear plot that we looked at previously.
Let’s explore the adoption rate of other technologies for purposes of comparison.
Source: https://en.wikipedia.org/wiki/Accelerating_change#/media/File:PPTMASSuseInventionsLogPRINT.jpg
As you can see in the plot above, the rate of technology adoption is increasing. This is due to the fact that modern networks and technology build on older technologies. This has been dubbed the “Law of accelerating returns” by Ray Kurtzweil, head of AI at Google.
Here’s another view of the same trend.
The fact is that any useful technology that’s growing rapidly over time is something worth paying attention to. Broadly speaking, the crypto space fits this definition regardless of any narratives of why, or what’s going to happen next. We’ve seen incredible innovation in the space, and just in the last year adoption from publicly traded companies and now a sovereign state.
I’ll leave the arguments about the need for an escape hatch from our current monetary system for another day. But it’s worth noting that the existence of an alternative system takes the chances of it being successful from 0 to 1 as Tim Draper would say. We don’t know what will happen, but we’re starting to get an idea of what could happen, and there’s a lot of pieces falling into place.
Thank you,