Definition:
Active addresses refers to the number of unique digital wallets or "addresses" that have been used to send or receive transactions on a particular blockchain network within a specific period of time (usually measured daily).
For example: On January 1st 2023, there were approximately 876,000 unique digital wallets or addresses on the Bitcoin blockchain network that were active, having conducted at least one transaction.
In the photo below, you can see Bitcoin's active addresses since 2011. One can note that when active addresses are at a peak, it can mark a near market top.
What to watch for:
Adoption: Active addresses are considered a more meaningful metric than total addresses because it indicates a level of usage, rather than just the number of addresses that have been created. By tracking the number of active addresses, it is possible to understand trends in usage and engagement of a cryptocurrency, and can be used to make predictions about the future growth and adoption of that currency.
An increase in active addresses can indicate increased demand and usage of a particular cryptocurrency, which can be a sign of potential future growth. On the other hand, a decrease in active addresses could indicate a lack of interest or decreased usage of a particular cryptocurrency, which could be a sign of potential future decline.
Decentralization: Tracking active addresses can also give some insight into the level of decentralization of a network. If most of the active addresses are controlled by a small group of entities, it may indicate a higher level of centralization, which can be seen as a risk for the network's security and stability in the long run.
Market Peaks: A surge in the number of active addresses may signal increased buying and selling among investors, potentially as a result of significant price movements, which could be an indication of a market peak. Historically, a peak in the number of active addresses has tended to align with a peak in the value of the corresponding asset.
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