Blockchains are entirely transparent when it comes to their daily or even hourly activity. One of the theories for the source of a crypto token’s price discovery is the “network value”, or the transactions carried.
Busy Networks Don’t Necessarily Command High Crypto Price
Recent analysis sees various types of correlations between a token price and the network’s capacity and real-world usage. There is no hard and fast rule to link transaction count directly with the coin or token’s market price.
“While unique active users probably wouldn’t be an effective metric to predict prices for day trading, it looks like, over a longer-term, some tokens like LTC really have shown a strong correlative connection between their token price and the number of active users transacting on the network in a given day,” the researchers at LongHash concluded.
For the 18 top tokens based on market capitalization, LongHash crunched the data from CoinMetrics and came up with distinct behaviors. The research correlates the market price and active addresses. The data stretches back at least a year, with the exception of Bitcoin SV (BSV), and as long as possible for tokens with a longer history.
Depending on the type of crypto token, the Pearson Correlation Coefficient, a measure of correlation, moved between 1 and -1. This meant that for some tokens, the correlation was strong, while for others, price and network activity were detached.
LTC and BTC Show Strong Correlation Between Usage and Price
Crypto-currencies like Bitcoin (BTC), Litecoin (LTC), Chainlink (LINK), and NEO reveal a strong correlation. Increased network activity is usually followed by a price rally. The connection comes from the observation that flows to exchanges usually precede more significant price action.
For networks like Bitcoin SV (BSV), Stellar (XLM), TRON (TRX), TEZOS (XTZ), Ethereum Classic (ETC), MAKER (MKR), NEM (XEM), and Basic Attention Token (BAT), the connection is extremely weak. More unique activity does not correlate with price increases. The reason for this is that BSV is still too young, and still growing its network.
The TRON, Tezos, and other platform coins also use transactions to mark computation. Not all transactions on token networks are economic in value. Some are only related to computation or record-keeping. In the case of networks like EOS, WAX, and BitShares, an extraordinary transaction count could even be achieved with no clear purpose, to showcase the network’s capacity.
Ethereum (ETH) is in a class of its own, showing a weak correlation. The reason for this is that ETH is also used as a utility coin, and transactions don’t always mean increased speculative interest.
The observation serves as a warning against the hype of networks that offer outlandish maximum capacity as one of their features. So far, even fast networks are loaded way before their capacity. The actual usage of distributed apps is still tentative. Even in the case of TRON, usage has not managed to reawaken the crypto’s price and achieve higher valuations.
What do you think of the correlation between crypto transaction activity and price? Share your thoughts in the comments section below!
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