Morning Markets: In all the IPO hubbub, we’ve lost track of the cryptocurrency market. Let’s take a peek.
If you haven’t kept obsessively checking the price of bitcoin over the past year, don’t worry. You’re normal. For the rest of us, the price movement of the leading cryptocurrency has been somewhat staid.
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A year ago, bitcoin was worth about $6,500. Today’s it’s worth about $8,100. That isn’t much movement. In between a year ago and today, however, bitcoin has set prices from as low as the $3,000 to and as high as $13,000. Bitcoin is still bitcoin, even if its former, regular value appreciation appears to have slowed.
But price is only one vital sign for bitcoin and its friends. There are others. Let’s examine two key indicators that we track to see where things are past the headline price.
When I want to get a handle on the health of the crypto markets, I check bitcoin transaction volume (via the well-capitalized Blockchain), decentralized app activity on the Ethereum blockchain, and, when I have time, the aggregate market cap for so-called altcoins, the smaller, less-well-known cryptos that have yet to find a mainstream audience.
The logic behind the metric selections I hope is somewhat simple. Bitcoin transaction volume, while correlated to the price of the substance, helps paint a picture of how close bitcoin is to paying for itself. The more transactions that occur, the larger the transaction fees that miners can accrete. Since there is a time in the future when bitcoin miners won’t be paid in new bitcoin, it’s nice to know how much people are paying to use bitcoin. And, of course, companies like Coinbase generate revenue from transactions, so more volume can be viewed as bullish for startups in the sector.
Regarding decentralized apps, or “dapps,” I like to keep tabs on new dapp creation. Or, the pace at which new dapps are released. It’s a proxy of modest value to understand how many shots are being taken on the goal towards finding a great use case for Ethereum blockchain. Finally, market cap is something you can track here; it’s self-explanatory.
So, what do our first two indicators tell us?
- After a slump, bitcoin transaction volume has recovered from its 2018 lows and is high by historical norms. That’s bullish for bitcoin itself and the cryptocurrency market as a whole.
- And that new dapp releases are down sharply from their 2018 highs, but have matched the pace (roughly) set in late 2017. So, after a boom, about 60 new dapps are rolling out monthly. This is less bullish than our first indicator, while also showing that dapp activity is a multiple of where it was in 2016.
When I set out this morning to get a rough feel for the state of cryptocurrencies, I expected to find negative signals. Instead, bitcoin’s transaction volume recovery was stronger than I expected, and more dapps are being released than I anticipated.
Illustration: Dom Guzman