The Bitcoin Network Is As Healthy As Ever

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The below is an excerpt from a recent edition of Bitcoin Magazine Pro, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

Active Entities Growth

In today’s issue, we’re covering the latest state, health and growing valuation of the Bitcoin network. There are growing fundamentals that continue to raise the floor for valuation, as price is facing another major cyclical all time high drawdown.

One of those key metrics is the growth of active entities on the network. Active entities are clusters of addresses that are controlled or owned by the same person, institution, or market participant. “Active” means that you have received or sent bitcoin that day. It is derived from Glassnode’s data science and mathematicals techniques. While it is imperfect, it has been able to track growing demand over time. More on their methodology can be found here.

Looking at the chart below, active entities have more than doubled since 2016 — from 126,904 to 255,333. The past two cycle tops were preceded by elevated growth and spikes in active entities, reaching 376,549 and 432,636 in 2016 and 2021 respectively. Each cycle has seen new highs in active entities. The subsequent bottoms have seen a trend towards higher lows. This shows the increasing number of “users” who use Bitcoin’s on-chain transactions.

Entities transacting on Bitcoin, network value and the number of addresses with non-zero balances all continue to grow, pointing toward greater adoption.

7-day moving average of active entities using the Bitcoin network

There are many attempts to derive and assess Bitcoin’s evolving market valuation. The Network Value to Transactions (NVT), which is a ratio between bitcoin’s USD market capital and the USD volume of on-chain transactions, adjusted for entity activity, is one of the most useful methods to assess Bitcoin’s evolving market valuation. The NVT ratio of Bitcoin shows that the network is becoming more valuable with time. The trend values are higher than the trend values, while the trend values below indicate that the price is low.

There’s an increasing amount of bitcoin supply that can move hands off-chain, especially on exchanges, and the growing adoption of the Lightning Network which is not captured accurately in the NVT ratio below.

Entities transacting on Bitcoin, network value and the number of addresses with non-zero balances all continue to grow, pointing toward greater adoption.

30-day moving average of the Network Value to Transactions ratio

Next we have a view of the number of the Bitcoin addresses with a non-zero balance since 2012. It has been difficult to determine the number of Bitcoin users. This is why entities were created. It is difficult to count addresses, since a user can have multiple addresses and an exchange address can represent thousands of users. However, it is a simple view that shows Bitcoin’s growing popularity. The number of non-zero balance addresses continues to see annual double-digit growth with 2022 annualized growth at 18.2%.

Entities transacting on Bitcoin, network value and the number of addresses with non-zero balances all continue to grow, pointing toward greater adoption.

The yearly average of bitcoin addresses with non-zero balances continues to grow

Using a simple and conservative trend forecast model, non-zero balance addresses will nearly double by 2026 at this pace. That projection only assumes annual growth each year of 10-13%, well below the current trend. This high-level view shows Bitcoin’s Scurve adoption over time.

Entities transacting on Bitcoin, network value and the number of addresses with non-zero balances all continue to grow, pointing toward greater adoption.

A 5-year forecast for Bitcoin with an s-curve adoption rate

What’s important is that the Bitcoin network is operational 24/7/365 as the world’s most efficient and secure value-storage and settlement network to any user who wishes to utilize it.

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