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Ethereum’s Active Address Count and Price Action: A Correlation Analysis

Ethereum has seen significant price movements over the past few years. From reaching an all-time high of $4800 in 2021 to dropping below $1000 in 2022, ETH has experienced both bull and bear markets. But what factors drive these price fluctuations? One possible indicator is the active address count, which measures the number of unique addresses that are active on the Ethereum network in a given period.

According to CryptoQuant, a platform that provides on-chain data and analytics for cryptocurrencies, there is a historically observed correlation between Ethereum’s active address count and price action. This means that when more addresses are active on the network, the price tends to increase, and vice versa. This correlation can be explained by the fact that an increase in active addresses indicates increased network user activity and transaction volume, which are often associated with rising demand and price increases.

Source: CryptoQuant

However, this correlation is not always consistent or reliable. Sometimes, there are periods of divergence, where the price and the active address count move in opposite directions. This can signal a potential trend reversal or a weakening of the current trend. For example, in May 2021, after a correction from the $4800 peak, Ethereum’s price started to rise again, but this increase coincided with a decline in active addresses. This created a negative divergence between the two metrics, indicating that despite the price increase, network user interest was decreasing. This was often a sign of an unhealthy uptrend, as it suggested that the price was driven by speculation rather than fundamentals.

The negative divergence persisted until November 2021, when both Ethereum price and active address count experienced a simultaneous drop. This can be interpreted as a consequence of the divergence, as the price finally adjusted to the lower network activity. This marked the end of the 2021 bull run and the beginning of a prolonged bear market that lasted until mid-2023.

Currently, Ethereum’s price is showing signs of recovery, as it has risen from around $1600 in January 2024 to around $2800 as of February 15, 2024. However, the active address count is not yet a strong support for this uptrend, as it is still below the historical levels that corresponded to the previous $2800 price. As of February 15, 2024, the active address count is around 380k, while historically, it was around 500k when ETH first reached $2800 in April 2021. This suggests that the current price increase is not yet backed by sufficient network user activity and transaction volume, and may face resistance or correction in the near future.

Therefore, it is important for investors and traders to monitor both the price and the active address count of Ethereum, as they can provide valuable insights into the health and direction of the market. While correlation does not imply causation, it can indicate a possible relationship between the two metrics that can be used to make informed decisions.

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