Measuring the spread of the Bitcoin network is not that easy. Because the picture that provides the number of addresses is distorted. But a new on-chain indicator can shed light on the darkness of adaptation and even anticipate a price trend.
The Bitcoin price is getting strong again and was able to rise over 8 percent within a week
It is now well over $ 11,000. We reported yesterday about the short-term reasons for the price increase . Separated from this, however, a more long-term indicator could also help with Bitcoin price prediction.
Why Plus500? Leading CFD trading platform; 40,000 EUR demo account; Mobile trading app; strong lever; large selection of different financial products (cryptocurrencies, gold stocks, commodities, ETFs, forex, indices).
The Bitcoin course grows with the adaptation. Logical, after all, around 900 BTC worth $ 9.5 million (USD) flows into the network every day. This volume must first find buyers in order for the price to remain stable at all – not to mention growth.
How widespread Bitcoin is, however, is difficult to measure. The number of addresses , i.e. the individual “bank accounts” on which BTC is located, only gives an imprecise picture. After all, it is now common practice to generate a new address for every transaction. That is, individual Bitcoiners can have two to three-digit numbers of different addresses. Furthermore, individual addresses can also hold the credit of different Bitcoiners, such as Exchange addresses .
The on-chain analysis service Glassnode paints a more precise picture . With the “Active Entities Indicator” the data scientists try to separate addresses and actual Bitcoin users. The result: the number of addresses is about three times higher than that of users. In other words: on average, each “entity” controls three addresses.
Number of addresses in relation to the users (referred to here as „entities“). Source: Glassnode
According to our analysis, the number of entities that own Bitcoin was around 23.1 million in January 2020,
23 million bitcoin
The growth of Bitcoin users is a clear bullish signal – and it could hardly be any brighter right now.
Because as on-chain analyst Cole Garner notes on Twitter , Bitcoin users are currently flocking to the network in droves.
In their search for meaningful on-chain indicators, investors can now fall back on another tool. We are talking about the „Active Address Sentiment“ from BTC trader Philip Swift. This is a Bitcoin metric that compares the number of active addresses with the price. Lo and behold: there seems to be a connection. If the orange line (active addresses) touches one of the dotted lines, this often marks a short-term bottom or a short-term top.
The active address sentiment indicator. The green arrows each mark a short-term bottom and thus represent good entry opportunities. The red arrows indicate tops.
The indicator becomes intuitively understandable if one imagines it as the relationship between price growth and adaptation. If the price soars, the price increase cannot be absorbed by the adaptation (measured here as active addresses) and it must be corrected. The indicator is therefore a combination of on-chain metrics and fundamental analysis and can provide important information about the short-term trend.