In “The bullish case for bitcoin”1 Vijay Boyapati defines the general pattern that bitcoin’s price seems to follow. Vijay writes that “Bitcoin’s price appears to follow a fractal pattern of increasing magnitude, where each iteration of the fractal matches the classic shape of a Gartner hype cycle”.
Vijay then adds that “each Gartner cycle begins with a burst of enthusiasm for the new technology, and the price is bid up by the market participants who are “reachable” in that iteration”, the innovation trigger part of the cycle. The cycle ends due to “an exhaustion of market participants reachable in the cycle”, what is called the “peak of inflated expectation”.
In his book, Vijay identifies and describes 4 cycles of the bitcoin price, called Gartner cohorts. Currently we are on the 4th cycle.
As you can see, price cycles are related to adoption, from cypherpunks to intrepid investors, to retail and institutions, and lately nations like El Salvador.
But how can we visualize adoption? How can we gasp the impact adoption has had on price? Is there a new wave of adoption happening currently? How can we expect price to behave in light of a new wave of adoption?
Bitcoin adoption waves.
To estimate bitcoin adoption waves I use data of daily active addresses count from Coin Metrics.
An adoption wave is defined as the % of days in a month that active addresses count is above a predefined threshold.
For example, if active addresses count is above 100,000 addresses for 100% of the days in a month, and if that continues to happen for an extended period of time, it is considered that wave of adoption to have finished.
An adoption wave that is in progress can show readings near to 100% in some months, but it fails to sustain those levels for an extended period of time, even falling to 0 after.
The chart below shows bitcoin adoption waves for various thresholds of active addresses and the price of bitcoin.
We can see from the chart below that adoption waves as we have defined them match the Gartner hype cycles described above.
Prior to July 2010. There was no bitcoin price on organized exchanges but we can still see adoptions waves forming. In this case 10 and 100 daily active addresses growing to 100%.
July 2010-July 2011. The first cycle of adoption waves with price data. Bitcoin tops at $30 as adoption wave of 10k daily active addresses (purple) reach 100% and on a spike of the 25k addresses above 50% (lightgray).
August 2011-December 2013. You can see the price bottoming out as the 10k address adoption wave (purple) remains at 100%. Prices start to raise as the adoption wave of 25k active addresses is completed (remains at 100%). Bitcoin price tops above $1,000 in December 2013 as the 100k active addresses (grey) adoption wave gets to 100%.
January-2014-December 2017. Bitcoin’s price bottoms around August 2015 as the 250k active addresses (slategray) adoption wave is born and starts to climb to 100%. Bitcoin passes is previous all-time-high as the 500k active addresses adoption wave starts at get to 100% (lightsteelblue). A fresh all-time-high is reached in December 2017 with adoption waves of 750k and 900k around 100%. The adoption wave of 1 million active addresses appears for the first time, reaching about 75% (dark blue).
Current cycle (January 2018-present). After the peak near $20k, bitcoin enters bear market at the same time that adoption waves for 750k, 900k and 1M active addresses plummet to basically zero. Prices found a bottom in December 2018-January 2019 as the 750k adoption wave started to grow again, The growth in this adoption wave to 75% coincided with the price of bitcoin climbing back to $14k by June 2019.
Bitcoin reached a new record-high of $64 in April 2021 as adoption waves of 750k, 900k and 1M active addresses reached levels around 100%.
Where we are right now.
The 500k active address adoption wave remains at 100%. It seems this adoption wave has finished.
Adoption waves of 750k, 900k and 1M active addresses are recovering so far September, standing at 85% (77% in August), 70% (29%) and 20% (0%) respectively.
As these adoption waves keep growing one should expect they will be accompanied by price gains. The last time adoption waves for 900k and 1M started to increase was in May 2020, bitcoin was about $10k. As these adoption waves continued to grow towards 100%, the price of bitcoin jumped 6 fold. we’ll see this time.
https://www.amazon.com/Bullish-Case-Bitcoin-Vijay-Boyapati/dp/1737204118