20.09.202113:56 Forex Analysis & Reviews: Bitcoin: How to determine further price movement by metrics of network activity

Over the past two days, bitcoin quotes have fallen significantly, thanks to which the analysis of on-chain indicators of network activity has been significantly simplified. At the same time, it is not necessary to use metrics that display a picture of the cryptocurrency's network activity without accompanying technical tools. The number of unique addresses, the total volume of transactions, as well as mentions in social networks and the dynamics of their movement may indirectly indicate further price movement.

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Daily Active Addresses is an on-chain indicator that displays the number of unique addresses that are in contact with the cryptocurrency network. It is used to display the current interest in a particular coin and the dynamics of the growth of the number of unique users over a certain period.

This indicator is more fundamental and can be used both for medium and long-term analysis of the state of the currency and prospects for the future, and analyzing the impulse price change. Let's take the example of the current state of the on-chain metric of the number of active addresses in the bitcoin network. As of 10:00 UTC, there are 753,000 unique addresses in the BTC network. For an asset with a market capitalization of about a trillion, this is an average indicator. This indicates that the market is not in a phase of active growth, which is accompanied by increased on-chain activity and a large number of new addresses. In addition, the charts show a divergence between the current value of bitcoin and the number of unique users.

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Divergence is a discrepancy between several specific metrics or technical charts of a financial instrument.

Several more conclusions can be drawn in addition to the obvious conclusion that the cryptocurrency is not in the stage of rapid growth. To do this, we will need to expand the dynamics of the graph and analyze the historical context. Judging by similar periods, after the Daily Active Addresses indicators were in this range, a powerful price increase followed. With this in mind, we can conclude that now bitcoin is in the accumulation stage, which will be followed by growth. In addition, this graph can indicate the local highs and lows of the coin's network activity. Thanks to this and using additional tools, it is possible to track the growth or decline in the transaction fees in the cryptocurrency network.

When analyzing Daily Active Addresses and comparing its data with the number of transactions, you can see a significant divergence. This is due to the growing institutionalization of the crypto market: as of September 20, more than 50% of all major global companies have invested in digital coins. With this in mind, it is worth understanding that several large bitcoin holders can carry out transactions for an amount greater than 50% of unique addresses. Due to this, a divergence is born, which is a common value for bitcoin and ether charts.

Thanks to the on-chain metric Daily Active Addresses, it is possible to determine what is the reason for the sharp growth of the cryptocurrency. If during the price rally the number of unique addresses is above 800,000, then, most likely, the retail audience and a small percentage of institutions are behind the price movement. If the number of addresses is below 500,000, and the price continues to go up, increasing the gap, then, most likely, a large whale is behind such a movement of quotes. Having received primary data on the assumed nature of the price increase, it is possible to conclude its feasibility and prospects, because the retail audience is often held hostage to impulsive decisions that only harm the price of the coin.

Analyzing the current indicators of bitcoin network activity and supporting the assumptions with historical context, technical indicators, we can conclude that the coin is in the stage of consolidation and accumulation. The number of unique addresses is on average, and the asset price fluctuates in a narrow range, while large companies continue to accumulate the volumes necessary for growth. At the same time, it is worth taking into account the local collapse that occurred on the market today. As a result of combining the metric of the number of active addresses and the total volume of transactions, whales do not produce a large number of transactions, and the retail audience is gradually falling due to the collapse of the price. It is likely that after the situation stabilizes, we should expect a significant increase in bitcoin's on-chain metrics.