Unlocking Crypto Wealth: A Must-Read for Every Investor
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Take 2 minutes to learn more
Delving into an academic masterpiece titled “Network Effects and Store-of-Value Features in the Crypto Market” left me exhilarated, raising my fist in triumph. This scholarly work serves as empirical validation for the investment strategy we’ve championed over the years.
Elevating a Crypto’s Worth: The Power of Active Wallet Addresses
The authors meticulously scrutinized the top 100 crypto investments spanning the extensive period of 2010–2023, rendering their study one of the most exhaustive analyses to date on the determinants of long-term crypto prices.
A striking revelation emerged: in 94% of the crypto investments scrutinized, the surge in active wallet addresses corresponded to a rise in price.
In essence, the upward trajectory of users mirrors the ascent in price—a principle we’ve advocated for years.
In part, it aligns with common sense: the more widespread the use, the more valuable the currency becomes.
This, however, diverges from the conventional mindset of many crypto investors.
Active Wallet Addresses are not even a metric listed on top crypto listing sites like CoinMarketCap. You really need to delve deep to uncover this number, but in our perspective, the user count should be the foremost figure we encounter.
Active Wallet Addresses, akin to Daily Active Addresses (DAA) or Monthly Active Addresses (MAA), essentially reveal the actual user engagement. If cryptos are viewed as businesses, then this number represents their customer base.
The value of cryptos increases with increasing user adoption. Now, we have the evidence.
Number of Transactions as a Catalyst
In approximately half of the crypto investments analyzed, a higher number of transactions correlated with an uptick in price. In simpler terms, if the token experienced more frequent usage, it was more likely to appreciate in value.
Once more, this aligns with logical reasoning, yet it remains a less reliable indicator compared to the number of users. Both figures can be manipulated, but inflating the number of transactions is even more susceptible to manipulation.
While the number of transactions holds significance, its impact amplifies when the user base is expanding. If you stumble upon crypto witnessing a surge in users, consider a growing number of transactions as a significant boost to your assessment.
Consider this scenario: Would you prefer ownership of a currency exclusive to a handful of affluent individuals, creating the illusion of substantial money flow, or a currency widely embraced by everyone? This distinction draws a line between trading volume and the number of transactions.
Limited Supply as an Additional Catalyst
Bitcoin’s scarcity, capped at 21 million units, has garnered considerable attention. In contrast, many crypto projects can endlessly generate new tokens, diluting their value over time.
The study underscores that a crypto investment with a restricted supply can render the token more scarce and consequently more valuable. However, limited supply alone doesn’t suffice to predict a sound investment.
Once again, this aligns with logical reasoning: a Bitcoin clone devoid of user adoption would essentially be Bitcoin Cash. Consider limited supply as a potential “accelerant” for an investment thriving with active users.
In summary: Seek out investments boasting a thriving user base, with a preference for those witnessing continual growth over time. A dynamic user community serves as a crucial indicator.
Among these investments, if they demonstrate substantial transaction activity, consider it a positive factor, adding a valuable “+1” to their profile. Additionally, a restricted supply further enhances their appeal, earning them another positive point. Naturally, these factors, while pivotal, should not be the sole considerations.
The team and technology play vital roles (refer to our Investor Scorecards). Regulatory risks and potential issues are equally significant (consult our Risk Scorecards).
Treasure in Knowledge
Occasionally, valuable insights are hidden amidst dense academic language, resembling nuggets of gold waiting to be unearthed. This report is precisely that—a trove of gold. Here’s a guide to leveraging this information for crypto investing success.
1. Utilize our Investor Scorecards and Risk Scorecards to identify potential winners.
2. Examine their active wallet addresses (or daily active users) as a potent catalyst.
3. Factor in the number of transactions and limited supply as additional strengths.
A noteworthy point: the study reveals that mature crypto investments, such as Bitcoin and Ethereum, exhibit a robust correlation with gold. Investing in these winners is akin to securing a stake in digital gold.
