In Defense of the Bitcoin Network: Better news and worse prices is a good signal..

Hulki Okan Tabak
Feb 13, 2019 · 5 min read
Photo by Eivind Pedersen from Pixabay —

Bitcoin is going through one of the toughest bear markets of its history. While the pullback from December 2017 highs was comparable to previous bear markets, the sheer size of the market contraction from around USD 350 billion to USD 60 billion is very significant. Addition of alt coin market boom and bust makes the figure even larger.

I have written on the Medium about the disparity of network usage statistics and price action more than a few times during 2018:

Coming from the formal investment discipline background, I along with a host of more intelligent folk tried to find some pattern, metric, relative value — namely anything to make sense of the price movement. Today the issue has been discussed, opinions have been formed and reformed. The cryptocurrency investors now have a better grasp of the issue if not a consensus on what is important.

I have changed during this period. I clearly internalized that pre 2017 comparisons need to be revisited as a new breed of investors entered and adequately remained in the market during the boom and bust cycle. I oscillated between a store of value perspective and method of payment utility — only to emerge somewhat neutral in between. That I believe is not my maturity alone but a general evolution in to an effective real currency on its own. As the market shed billions, neither the technological development nor the community did abate. On the contrary, institutional interest, if not the funds per se, increased.

In the following couple of charts, I’d like to revisit some of the charts I’ve used before from and share my outlook briefly:

Market capitalization is down around 80% from the peak. But..

But the picture is very different in hashrate terms. December 2017 saw 11,000,000 TH/s hashrate. Now with a market capitalization 20% of December 2017, hashrate is 40,000,000 TH/s. This 23x improvement in hashrate over market cap. While this sounds wacky, it underlines that there has been a lot of investment in the bitcoin network that remained online. The result is a significantly stronger network which has a better risk — return profile on a technical level corroborated with a lower entry price point.

While Segwit and other solutions have led to a reduction in number of transactions, price collapse added to this trend. Consequently, average number of confirmed transactions fell from 400,000 per day range in January 2018 to 175,000 in the middle of the year. This figure is back at around 350,000 — showing robust recovery that is much less correlated with price developments. Indeed as prices fell in half from the summer of 2018 to February 2019, number of transactions doubled.

The graph of the number of transactions excluding popular addresses is an exact replica. It underlines the fact that a sizeable part of the increase in transactions may be coming from non-exchange related activity. I think that the distinction might not be as simple but the figures point out to a hardcore internal dynamic beyond trading. In fact, trading is becoming more sophisticated with investment speculation and payment increasingly woven together.

Average block size has also recovered from mid 2018 doldrums and supports the above observation of increased usage by a potentially more diverse set of users.

Estimated transaction value measured in Bitcoins remained flat since mid 2018 and is still lower than both 2017 December peak and 2012–2017 average. I attribute it to a new investor base that is holding on to Bitcoin as an investment a.k.a digital gold. Unknown to the general public is the depth of institutional money that is effecting this holding pattern. All in all, there seems to be a reasonable balance between hoarding and usage. As I said, pretty much like a de facto currency..

Number of wallets while not a reliable indicator per se supports increasing adaptation observation.

Number of unique addresses used per day is down 50% from the highs and comparable to January 2017. This statistic underlines the existence of positive balance addresses that are not active on a daily basis. Note that while only 450,000 addresses show daily activity; there are 4,390,000 addresses with at least USD 100 to USD 1,000 value and a total of 14,698,000 addresses with at least USD 1 to USD 100 value. Note that the larger set includes the subset as well. These figures are from

In summary, the network usage statistics point out to a better picture than 1Q18 while the price is 1/4th of that period. In support of this highly improved risk-return profile, Bitcoin is gradually emerging as the independent reference point in financial transactions. It acts as collateral in some transactions while it is used to enhance neutrality in certain projects. It augments a portfolio with its limited financial market overall correlation and it is considered a promising part of digital custodial & payment solutions. Bitcoin seems to have come out from a very hard test with a lot of scars but alive and kicking. Once the bear market stabilizes, a new phase of intensive, longer and less-volatile adaptation period seems likely to start. Most of us will notice the new trend when the price approaches the previous highs and some of us will buy after the new high and then we’ll talk about another bubble as both Bitcoin and ourselves mature in tandem.


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