Active Bitcoin addresses are on the rise, reaching the same level last seen in December 2017 during Bitcoin's peak to its ATH just under $20,000. As you can see in the chart below, active Bitcoin addresses have matched the same level of activity around the same time Bitcoin printed a marginal new ATH over the past few days. With the Bitcoin and crypto ecosystem everchanging and the landscape looking completely different from 2017, this indicator could have huge implications for Bitcoin's future.
Increasing Sentiment.
Of course, more active addresses means there is interest being generated in the space. This means that either 1) Existing addresses are transacting (buying/selling/sending), or 2) New addresses are being created. New addresses being created is an extremely bullish sign. And while individuals are not limited to only one address per person (addresses are pseudonymous), the majority of Bitcoin users use the same one or two addresses, and don't perpetually create new ones. Conversely, when sentiment is decreasing, we notice a decrease in active Bitcoin addresses as investors are afflicted by fear and attempt to hide, shelter, or disregard their potentially underperforming holdings. However, the chart clearly shows that activity is much higher during markets, indicating buying, than high activity selling during bear markets.
More Buying.
During bull markets, we tend to see a consistent increase in active Bitcoin addresses. Why? More people are buying. Why are they buying? Improving sentiment. Market psychology is fascinating and there are some tremendously insightful and revealing studies about correlations between market activity and behavioral psychology. Humans are emotional beings driven by greed and fear, and markets are a quantification of human behaviors based on these emotions. Getting back to our main point, as sentiment (emotion) towards Bitcoin grows, so does interest and greed which drives activity and buying.
New Money Entering the Market.
Perhaps the theme of H2 2020 has been the entrance of institutional investors into Bitcoin. Although professional investors have access to and sometimes use different modes of gaining market exposure to asset classes, even the most popular custodians for popular Bitcoin derivatives such as Grayscale Bitcoin Trust (GBTC) not only hold but continue to buy Bitcoin proper. This buying is therefore inspired by increased buying by retail investors but more significantly now institutional investors like Paul Tudor Jones, Stan Druckenmiller, Bill Miller, and major global companies like PayPal, Square, and MicroStrategy taking initial positions in Bitcoin. While these individuals or entities may not directly hold actual Bitcoin, some of the derivatives through which they gain Bitcoin exposure are obligated or committed to custody actual Bitcoin.
Institutional Dwarfs Retail.
Despite true-Bitcoiners philosophically protesting institutional investing, the fact is institutional investors have significantly more investable capital than retail investors. Accordingly, as Wall Street, Multinational Companies, University Endowments, High Net Worth Individuals, and possibly even governments start to get their feet wet in Bitcoin, this will lead to exponentially more Bitcoin addresses and subsequently money into Bitcoin, which should create a massive boon to Bitcoin's price. How much yet is yet to be determined, but if H2 2020 is only a glimpse into what's yet to come, I suspect the above active address ATH, and thus sentiment, will be shattered, coinciding with substantially higher prices.
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