(This is a seven-minute read)
In many ways, it’s one of the biggest questions crypto faces. For altcoin investors, whose fate depends on the expansion of the industry as a whole, it might be the biggest one. If we’re gradually headed downhill, it’s just a matter of time until our holdings go to zero. But if we’re early, then we could still see insane, life-changing performance in our portfolios.
Last week, I stumbled upon a Medium post from venture capitalist Chris McCann. The Solana and FTX seed investor posited, via 12 easy-to-understand graphs, that we were still early to the space in May 2018, almost exactly 40 months ago.
Comparing crypto adoption to the adoption of the internet, he presented a compelling case: 2018 was still early. Through his graphs, at that point in time, he showed crypto adoption was on the same track as the internet and was scaling at a similar rate.
But are we still there? Are we still following the same trend of exponential growth?
I revisited and updated the graphs to see.
As crypto is different in many ways from the internet, I’ll be making some of the same assumptions that Chris did so that we can make a direct comparison. Here are the difficulties associated with that approach:
- People have multiple crypto wallets, so one wallet doesn’t mean one user
- Exchanges often create new wallets for new transactions
- Some users who buy over-the-counter cryptocurrency products or own crypto on certain exchanges don’t have direct access to wallets (Robinhood, eToro, Grayscale)
Still, we can get a pretty good view of things by using combining and estimating metrics.
Bitcoin Wallet Address Growth
The first metric: unique Bitcoin wallet addresses. The amount of total Bitcoin wallets today is closing in on 900 million. In May 2018, the number was about 398 million, which, in turn, forty months before was about 60 million.
So growth is slowing somewhat, although if we compare it to overall internet adoption, it’s tracking closely, as the rate of internet user growth leveled off over time as well.
It was in the 12th year of public use that the internet crossed one billion users, while Bitcoin is closing in on a billion addresses in its 13th year.
Then again, an address is not equivalent to a user, so it’s a bit more of a toss-up. Still, a doubling in three years is nothing to scoff at.
Active Bitcoin Addresses:
So how many of those addresses are actually active (that is, have sent or received any quantity of Bitcoin on a given day)? Take a look:
For Bitcoin, two new peaks were reached in January and May of 2021 at approximately 1.25 million active wallets per day. The previous local peak was approximately 1.1 million in late 2017. Things in late 2017 looked to be going parabolic until transactions dropped down to 500,000/day in early 2018.
To me, this graph reflects on some of the transactional limitations related to Bitcoin. While there are definitely solutions to some of the volume-related problems surrounding Bitcoin, it’s possible that the slowing growth is correlated.
While it’d be impossible to collect the data for all cryptocurrencies, I’d postulate that growth is quite a bit higher for crypto as a whole. With 12,000 different cryptocurrencies in existence, however, it’s nearly impossible to do the math.
We can also check out active wallets on Ethereum: this graph’s steadier growth and higher 2021 high lends credibility to our hypothesis that overall network capability leads to more activity growth. While Bitcoin’s percentage of active wallets has slowly dropped (about .3% in 2018), Ethereum’s percentage of active wallets stays more consistent.
That kick-up in late 2016 was due to an attack attempting to overwhelm Ethereum’s system with a high volume of addresses created.
The number of total wallets and active wallets on Ethereum both look to be catching up to Bitcoin, a great sign for the Ethereum ecosystem as a whole. The addition of L2s (blockchain ecosystems powered by altcoins built on top of Ethereum) probably actually underestimates these metrics as a proxy for how much total network activity exists.
I couldn’t find great compiled data on total exchange user growth over time, but we can use volume to understand how much money flows through crypto markets. Above is a graph of monthly exchange activity compiled by theblockcrypto.com, showing the explosion we’ve had since January 2021.
While this graph roughly traces Bitcoin price activity, we can see that higher highs have a multiplying effect on exchange volume: a total crypto market cap doubling leads to about 3 times as much exchange activity. For evidence of this, check out Jan 2018 vs. Jun 2021.
Exchange Market Share:
Chris McCann took a look at crypto exchange growth to estimate total users, but since we’ve got better stats on overall user growth, we’ll can take a look at market share to get a look at the landscape.
Removing decentralized cryptocurrency exchanges like Uniswap and PancakeSwap from the picture, we’ve seen a massive broadening of the exchange landscape. Only a few exchanges (Coinbase and Binance, most notably) have been able to increase market share as a percentage. Including data from DEXs further muddies the waters.
I think this is an incredibly bullish sign for crypto growth and a real-life example of the concept of decentralization. If we look at the search engine wars of the early 2000s, at this point in time (relative to years since public launch), Google had well over half of market share. Binance barely cracks 15%.
There’s two ways to look at this, but both are good signs for crypto investors:
- If crypto forever remains decentralized in terms exchange volume, without any one player gaining too strong of an advantage, that’s a good thing for crypto.
- If crypto exchange volume does someday consolidate, it will be a long time from now, which means we’re early.
Internationalization, decentralization, and different value propositions by exchanges are all good signs that we’re still early to crypto.
Total Adoption by User Rates:
One of the most fascinating parts of Chris McCann’s analysis was his comparison of crypto growth to internet growth. DeutscheBank has since done its own study of the blockchain vs. the internet, below.
The first thing to note is that these two graphs exist on different axes and have already diverged. It is almost definitive now that crypto will grow slower than the internet, while in 2018 it was still a tossup as to which might grow faster.
But while crypto’s growth has been slower than the internet’s, the coefficient of that growth might be accelerating.
In their projections, DeutscheBank guessed that by 2030, total cryptocurrency users would cross 200 million. But today, in September, we sit at well over 220 million users by many estimates, fueled by a manic bull run.
The math shows that it’d be quite difficult for crypto’s overall user base to overtake the internet’s user base at an equivalent point in time. However, it looks quite possible that crypto crosses a billion users much sooner than expected and, well, that’d be pretty good news for crypto prices.
So…Are We Early?
In 2018, many graphs pointed to crypto taking the same path as the internet to complete world domination. Today, though, it’s harder to have that same level of optimism.
While at this point, we know crypto won’t be quicker to worldwide adoption than the internet, at this point in time, it’s on a good track to eventually get there.
Here’s what we can state with certainty:
- Growth in the crypto world has slowed down.
- There are now over 200 million cryptocurrency users.
- Things have never been so bullish for crypto.
While McCann in 2018 could fairly compare the growth of crypto to the growth of the internet as a whole, perhaps today, making that comparison is a little too optimistic.
Some cryptocurrencies hope to be a solution for the nearly two billion unbanked adults worldwide, but the current onboarding ramps to crypto are simply not widely available for people who don’t have access to online money (bank accounts, PayPal, CashApp, etc)
Where I live (in Mexico), to access the internet, you need a $50 smartphone or about 50 cents to get into an internet cafe (although those are increasingly disappearing). The barrier to entry is small, and that’s why the internet has climbed to over 6 billion users.
Cryptocurrencies, at least for now, are all tied to finance and commerce. Very few people are using the blockchain without financially participating via buying, selling, swapping, or lending cryptocurrency.
Consider the fact that to get into the top 50% of wealthiest people in the world, you need just $4,210. While it’s easy to see how someone that wealthy could get internet access, it’s harder to imagine them wanting to participate in today’s world of wildly price-volatile cryptos.
So no, crypto markets are no longer growing at the same rate as the internet once was, but perhaps that’s a good thing as it’s a sign that we’re still early. Once volatility is lower, perhaps many more people will participate, but the huge gains will be more difficult to achieve.
The New Frontiers of Crypto
Chris McCann’s article serves as a bit of a time capsule to cryptocurrency in 2018, without a mention of DeFi or NFTs: the concepts barely even existed yet.
“My biggest criticism towards the DApp future is we haven’t seen DApp usage keep pace with the number of DApps being created. The current core use cases of cryptocurrencies are speculation, store of value, assets, payments, etc.”
Today, though there are many use cases for crypto! DeFi, yield farming, loans, decentralized exchanges, platforms like Theta and Audius which hold data on the blockchain.
So as far as where the next opportunities in cryptocurrency lie, it’s likely that you haven’t even heard of them yet: and it’s that way by nature. Small projects with big ideas have a lot more room for growth.
To illustrate my point, I’d like to show a few graphs that couldn’t have even been imaginable three years ago. Here’s a graph from TheBlockCrypto.com of the total value of the assets locked in DeFi:
A sector of the industry Chris didn’t even touch on has now almost kissed $100 billion! Unthinkable three years ago.
And below is a graph of volume on NFT marketplaces. A year ago, Opensea did under $50k in daily volume. Today, it will do approximately $90 million. That’s an 1800x in just one year.
If you’re investing in crypto, well, it’s evident that both Bitcoin and Ethereum have slowed down in growth: and that makes sense: it’s harder to move the price of assets as they grow in size.
But if you want to know where to find that explosive 10x, 100x, 1000x investment, it’s the new trends within cryptocurrency, it’s the cutting edge, the latest innovations, that have the potential to explode.
For me, that means investing in the altcoins and protocols that will serve as facilitators for this new world of online wealth creation.
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