When analyzing the development of projects like Bitcoin or Ethereum, we often focus on the price development of their native cryptocurrencies, namely BTC and ETH.
However, in this way we are really only analyzing one side of the coin and completely neglecting the other. The fact is that on the one hand, price analysis allows one to understand what is happening in the short-term, but on the other hand, one can only understand the development in the long-term by analyzing on-chain fundamentals.
Bitcoin and Ethereum growth appeals despite the price
This dichotomy becomes clear and pretentious when comparing what happened simultaneously in 2022 with the price of Bitcoin and Ethereum on the one hand and the number of addresses with BTC and ETH on the other.
Actually, current research by CoinGecko shows that while BTC and ETH lost more than half of their market value, the number of Bitcoin and Ethereum addresses with at least $1,000 has instead steadily grown.
Long-term dynamics, such as the growth in the number of addresses, follow a much more constant and extended trend than prices. The latter are known to follow much shorter duration trends and, above all, are very nerve-wracking.
CoinGecko’s research includes a chart that gives a very good idea of this contrast.
Bitcoin (BTC)
start with Bitcoin, what is immediately noticeable is how over the four quarters of 2022 the orange price line has been declining fairly steadily. In fact, the drop from $47,000 in Q1 to $16,600 in Q4 was 65%.
What’s more, it wasn’t even a steady decline, as it was specifically driven by three big drops, including two in Q2 (Terra and Celsius) and one in Q4 (FTX).
Nevertheless, during the same period, the number of Bitcoin addresses reporting at least 0.1 BTC increased steadily, so much so that by the end of the year it was +23% higher than at the beginning of 2022.
Ethereum (ETH)
It is no coincidence that something very similar happened ether.
The price has fallen from $3,300 to below $1,200, excluding momentary spikes, down 64%. At the same time, however, the number of on-chain addresses with at least 1 ETH increased by 21%.
That this increase was slightly smaller than Bitcoin’s may be because BTC is probably believed by slightly more people as a store of value than those who also believe ETH.
However, it is worth noting that with the move to PoS ETH would a deflationary supply currency, at least for now, so the distance separating it from BTC in this context has narrowed a lot recently.
The accumulation phase in relation to the price of Bitcoin and Ethereum
According to CoinGecko’s report of Lim Yu Qian, the dynamics just described could be explained by assuming that crypto investors have taken advantage of the low prices to accumulate or hold them. This would be a sign of confidence in the future of the industry.
In addition, the increase in addresses would also indicate the entry of more participants or greater acceptance cryptocurrenciesinto this market.
In fact, during last year’s bear market, and especially during times of the biggest price declines, there were clear signs that whales were piling up.
It is possible that on the one hand there were those who, out of fear, sold out as soon as possible and were content with selling at bargain prices, while on the other hand there were those who did not let their emotions get the better of them and thought rationally that such low prices might be a tempting opportunity for accumulation.
So there should have been a huge transfer of money from the more emotional investors and speculators, usually the less experienced with less capital to invest, to the more rational and experienced investors and speculators, usually with large amounts of capital to be managed wisely and sensibly.
If things had happened exactly like this, the increase in addresses could easily be explained by at least 0.1 BTC or 1 ETH. So on the one hand there would have been a discharging phase out of fear and on the other hand an accumulation phase for reasons that see the risk as a danger but also as an opportunity.
In fact, CoinGecko’s own report indicates that the largest increase in the number of these addresses occurred in the fourth quarter, when Bitcoin in particular hit its lowest price level in 2022.
Although there were no certainties, one could imagine that the descent would eventually stop and when the collapse due to the FTX When bankruptcy stalled at -26%, one could imagine the bottom was near.
For example, the implosion of the Terra/Luna ecosystem in May caused Bitcoin’s price to plummet by 35%, while the failure of Celsius in June caused it to plummet another 43%.
Given that FTX played a far larger role within the Bitcoin ecosystem than Terra (which had very little to do with Bitcoin) and Celsius (which had far fewer users than FTX), this -26% had a vague semblance of only a semi-dip , so much so that by that point many were expecting a drop to $10,000, $12,000 or at least $14,000.
In other words, some analyzed the situation well and interpreted it as a potential buying opportunity, while many simply panicked and sold instead.
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