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Is rising usage driving crypto’s recent price boom?


Image Credits: Nigel Sussman (opens in a new window)

Everything is dumb until it works.

As 2020 comes to a close, the cryptocurrency world is experiencing another late-year surge of consumer interest as prices climb in value. Bitcoin is over $23,000 as I write to you, an all-time high. Ethereum’s cryptocurrency has recovered sharply as well, returning to mid-2018 prices.

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These gains have created a huge amount of wealth for crypto holders. According to CoinMarketCap, after falling under $140 billion in mid-March during the market selloff surrounding the beginning of COVID-19’s battering of America, the value of all cryptos has surged to nearly $659 billion.

It still has some way to go before it crests the record of around $830 billion set back in January 2018. But your Twitter feed is once again rife with notes about crypto and some of your friends have become insufferable once again.

The tweets and the friends have something of a point. This morning I went around the internet with a basket, collecting information about active bitcoin wallets, the distributed app (Dapp) market, the burgeoning decentralized finance (DeFi) space and other aspects to get a picture of what’s going on beyond mere price records.

After all, the price of every damn thing is inflated today, so seeing bitcoin set an all-time-high felt more appropriate than strange. Does the data show that there’s activity behind the valuation hype?

A quick look around the world of crypto

We have a few metrics to peek at, but let’s start with some old bitcoin-flavored favorites.

  • Unique bitcoin addresses used, via Blockchain.info: Modestly bullish.

Per the charting section of Blockchain.info, bitcoin unique addresses used — a proxy for the coin’s popularity — is up some in recent weeks, and up more generally in 2020. It remains below historical highs.

  • Bitcoin transaction fees paid: Modestly bullish.

Again per Blockchain.info, fee income received by bitcoin miners — paid by others looking to get their transactions executed — has risen in several waves this year, the latest spike being the largest. The recent peak in miner fee revenue is the second largest in bitcoin’s history, though far under its late-2017-early-2018 high.

  • Confirmed bitcoin transactions per day: Neutral.

To my surprise, Blockchain.info’s data on confirmed bitcoin transactions is largely flat in 2020. This is neutral, we think, but that grade could be generous.

Now, to some other, newer metrics.

  • Total locked value in decentralized finance (DeFi) apps: Bullish.

Looking at data from DeFi Pulse, the continued expansion of locked value in DeFi apps shows that the 2020 boom in such crypto activity has legs. Locked value references cryptocurrency that has been committed to any particular DeFi system. (More here, if you’d like a primer.) So, the more locked value, the larger the aggregate financial stake that crypto owners have deployed to the DeFi world, looking to derive monetary value from their holdings.

The DeFi boom — largely transacted in Ethereum smart contracts — has been a bright spot in the crypto world this year, creating more places where various cryptos can be used in more ways than merely holding in hopes of returns.

  • Dapp activity: Modestly bullish.

Finally, reading DappRadar’s 2020 dapp report shows that DeFi has become the defacto dapp category. So, if you’re talking dapps, you are largely discussing the world of DeFi apps, along with a dusting of other services.

Per DappRadar, “95% of transaction volume growth [in 2020] belong[ed] to Ethereum DeFi dapps,” The growth of DeFi is bullish, as we noted above. However, as the price of gas rose (how users can pay for Ethereum transactions) other parts of the dapp ecosystem slowed. “High gas prices hit activity on low-value dapps, notably gaming, which declined by over 90% between May and August,” DappRadar wrote. We therefore rate dapp activity as modestly bullish in aggregate.

In public and private markets, cloud earnings and valuations heat up

So what?

Of course, we’re taking a skim of the landscape that constitutes the blockchain world. It’s impossible to get a perfect handle on what’s going on. But it does seem that among the price gains currently grabbing headlines, there are a number of positive signals that point to more use of cryptocurrencies and other elements of the distributed software world.

Do the price gains make sense in the short term? Who knows. But they are not based on nothing.

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