Network adoption projections

Deep Dives with Real Vision’s Chief Crypto Analyst, Jamie Coutts

November 7, 2024

To access Jamie’s full report, sign up for Real Vision Pro Crypto using code BTC15 for your exclusive BTC Markets discount.

Network Adoption Projections Introduction

Note: My report came back from editors after the U.S. election results came in. This didn’t change anything about the content of this report other than to fortify the projections. In my mind, the 2 political parties represented two different adoption arcs for digital assets. The side that was the “Accelerationists” won. If the “Reluctant Adopters” had won the outcome in the long run would have been the same.

I hope you enjoy the report.

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In my last report, I highlighted a liquidity-driven price forecast for Bitcoin, which is ascending to global reserve asset status as the best hedge against monetary debasement. This link with currency debasement has held up fairly well over Bitcoin’s short history, but making similar predictions for newer sectors in the digital asset space — especially those with unique supply/demand dynamics — is trickier. Nonetheless, that analysis used the Bitcoin-liquidity relationship to project trends across various sectors, particularly within the smart contract platform (SCP) space.

In this report, I’m pivoting to explore whether SCP market value can be projected using network activity and on-chain data, moving beyond a strict liquidity focus. This approach aims to deliver a few key goals:

• Deeper Insights: We’ll leverage on-chain data to get a clearer picture of its correlation with SCP market value.
• Fundamental Balance: Anchoring our projections in core metrics provides a solid foundation to balance against liquidity-driven forecasts.
• KPI Framework: We’ll establish KPIs to track over the next year to capture emerging trends

By merging macro trends with on-chain fundamentals, we aim to build a more resilient model to explore the growth potential of the SCP sector and broader digital assets. Let’s dive into what the data reveals.

Recap of navigating the bull: Crypto cycle projections

In my last report, I made projections for asset classes over the next 12 months. Essentially, I developed a Bitcoin price model based on expectations for global liquidity. The basis for the projections were:

• Understand how much global money supply rises in an expansion phase to forecast its potential peak in this expansion.
• Measure Bitcoin’s movement in relation to global money supply to forecast a potential peak price and date for this cycle.
• Make an assumption for Bitcoin dominance to extrapolate a total market cap value in the Bitformance Top 200 Index.
• Back out the value of the five primary market sectors.

Below are the conclusions from that analysis.

The Bitcoin forecast blended a quantitative forecast with some qualitative forecasts to arrive at a probability-weighted price of approximately $189,000 by Q3 2025, which, based on historical analogs, is approximately when the cycle could end.

That would seem far-fetched based on current prices and general sentiment.

Time will tell.

Bitcoin forecast

Source: Bloomberg, Helios Analytics

For this report, I will hone in on the SCP sector specifically, as it represents the second largest sector and where most people are exposed outside of Bitcoin.

In the previous report, I suggested that if global liquidity simply followed previous cycles, it was feasible for the SCP sector to increase from where it is today, approximately $575 billion to $2.37 trillion.

We’ll get to whether such a target is feasible when we get to the later part of the report.

Sector forecasts

Source: Bitformance, Artemisxyz, HeliosAnalytics

In my asset-level analysis, I projected that leading Smart Contract Platforms (SCPs), including Ethereum (though not part of my RV Pro-Crypto portfolio), are poised for a pretty big move in the next 8-12 months.

In a liquidity-expanding environment, rapidly evolving networks such as Solana, NEAR, and Sui are poised to outperform, capturing a larger share of the overall market value and potentially driving their circulating market caps way higher.

These projections hinge on favourable liquidity conditions, accelerating blockchain adoption, and their ability to outpace Ethereum and its Layer 2 solutions in market share.

Asset projections

Source: Bitformance, Artemisxyz, HeliosAnalytics

Blockchain economy update

Before we dive into the modelling, let’s look at where things stand for the SCP sector in terms of the overall technical and fundamental performance.

SCP sector market cap

As of the end of October, the total market cap was just shy of $600 billion and has been treading water for 8 months.

In case this tight range feels like a pivotal level, well it is. We are smack bang on the 50% retracement level from the 2021 cycle peak to the 2020 cycle bottom. This technical level is typically a make-or-break level for large trends, and it appears it is also for crypto.

SCP sector fundamentals

It was another positive month for network activity in the blockchain economy, but there was a slowdown from the blistering pace of recent months. Many network activity metrics are in the 80th percentile or above versus the past four years, showing expansion beyond the previous cycle highs. The fact that the network growth has continued during a period of soft asset prices is a healthy signal for those paying attention.

The metrics we’ll focus on in the upcoming modelling section, such as active addresses and fees, finished 5% higher this month. Meanwhile, transaction count climbed 10%. Stablecoin transfers were briskly up 25% despite a 3% decline in the stablecoin market cap, according to Artemis xyz data.

The recent 16% increase in the Average Fee per Address (AFPA) metric over the past month is another sign of the improving financial rebound following Ethereum’s Dencun upgrade in March, which significantly reduced transaction fees, particularly for Layer 2 users. AFPA is a gauge of network engagement levels, with higher AFPA reflecting more intensive or high-value activity. Stabilizing blockchain fee revenue and AFPA postDencun suggests a healthy and improving blockchain economy.

If this trend persists into November, it could positively influence asset prices, which tend to move closely with AFPA.

Source: Artemis xyz, Token Terminal, DeFilama, Helios Analytics

Modelling network adoption

(Either my prompts suck or AI still hasn’t perfected pics and memes. Feel free to offer suggestions as this was the best I could do!)

In the next section, we’ll project potential market values for the SCP sector using key network activity metrics. While this approach is straightforward, especially for those versed in quantitative finance or machine learning, its simplicity is intentional. After extensive efforts in the past weeks to develop complex models using machine learning, I was pretty underwhelmed with the results. For now, a simpler method offers a clearer and more defensible approach.

For our projections, we’ll concentrate on three key metrics with extensive historical data: Daily Active Addresses (DAA), Fees, and Transactions. While each has its limitations, analyzing them at the aggregated sector level reveals a clearer correlation with total sector value. To enhance accuracy, we smooth out volatility by averaging these metrics over extended periods and cycles. Additionally, their consistent availability across various blockchains facilitates meaningful comparisons for our forecasting purposes.

Here’s the process:

• Run linear regressions on each metric to assess its correlation with market cap using R-squared values (R²).
• Establish 12-month growth rates for each metric across three scenarios: low, base, and high growth.
• Generate a forecast from each metric, then take a simple average of the three to produce a generalized market cap projection for the SCP sector.

Let’s dive in.

1. Network activity metric: Daily active addresses

First off, lets understand what the growth in Daily Active Addresses (DAA) looks since the advent of the SCP sector. DAA’s have exhibited exponential growth since 2018, with a cumulative increase of 9,128%, outpacing the SCP sector’s market cap growth of 3,296%. This metric has demonstrated resilience to price fluctuations, maintaining an average annual growth rate of 148% without any annual declines. Notably, DAA rose from 3.6 million in 2022 to over 19 million by October 2024, marking a 179% increase this year.

This accelerated growth parallels the surge observed during the 2020/21 bull market.

Clearly, with every year, more activity and more value are moving on-chain. While much of this activity is speculative, it’s undeniable that stablecoins are providing financial access to millions in the global south, real-world asset tokenization is gaining momentum, and major companies like Sony are now building in Web3 as the next frontier for audience engagement.

Daily active addresses: Correlation with market cap

To understand how shifts in daily active addresses (DAA) affect sector value, I ran some linear regressions to calculate the R², or coefficient of determination. This tells us how much of the sector’s market cap changes can be explained by changes in DAA.

R²values peaked in 2020 and 2021 (0.852 and 0.843), showing a strong correlation between user activity and market cap during the bull market. However, by 2024, this correlation decreased significantly to 0.014, which tells us that recently, address growth has become less indicative of market value.

The decline in the signal strength of daily active addresses (DAA) as an indicator of market value stems from multiple factors. The ease of creating new addresses means that rising counts don’t always reflect true user activity. These are a couple of recent examples of how activity can be manipulated:

• Bot Activity on Solana: over the past 3 months, Solana’s DAAs exploded by 355% to 5.64 million but with 3.4 million addresses showing lifetime volumes under $10, much of this increase likely stems from bots rather than actual users.
• Celo’s Micro-Transfers: Celo saw a spike in DAAs driven by users claiming tiny amounts from a basic income protocol, with 77% of addresses transferring under two cents — indicating activity was inflated by micro-transactions.
• Inactive Wallets on Solana: Solana reported over 100 million wallets, yet 86 million hold zero SOL, suggesting most do not represent active participation.

2. Network activity: Daily transactions

Transaction activity suffers from the same challenges as addresses, but once again, we can verify that over time more transactions are happening on-chain. Technological advances in blockchain scaling are having a massive impact here, with horizontal (Sui, Aptos, NEAR) and vertical scaling approaches (Ethereum, Bitcoin) increasing transaction capacity, leading to higher volumes.

After experiencing a decline of 21% in 2023, the first annual decline since 2019, transactions are on track to reach approximately 330 million per day by the end of the year. A 9.65% improvement YoY.

Transactions: Correlation with market cap

This metric displayed higher R² values in 2020 and 2021 (0.526 and 0.786), indicating solid explanatory power. In 2024, the correlation weakened to 0.190, implying that transaction count has lost some of its edge in predicting market cap growth.

To access Jamie’s full report, sign up for Real Vision Pro Crypto using code BTC15 for your exclusive BTC Markets discount.

Jamie Coutts, CMT

A pioneer in crypto financial analysis and a sought-after speaker, Jamie has transitioned from traditional markets to digital assets, creating research insights for institutions assessing blockchains and digital assets as part of their strategic investment allocations. Jamie’s multi-disciplinary approach blends traditional macro, technical, and quantitative techniques with the emerging field of crypto fundamentals.

Jamie’s career started as a stockbroker in Australia before roles as an equity trader at a global macro hedge fund and equity sales in Singapore and London. In 2014, Jamie joined Bloomberg Singapore as the senior Asia Buyside equity specialist, where he later led the regional crypto/digital assets sales and product strategy before launching Bloomberg Intelligence’s crypto asset research product.

Jamie holds a business degree and two technical analysis designations, previously serving on the global board of the Chartered Markets Technician (CMT) Association, where he was also head of APAC Development. Jamie has spoken at conferences across Asia and the U.S., and his research regularly features on crypto podcasts. His content is available via the Bloomberg terminal, as well as Twitter and LinkedIn.

A passionate advocate for personal health, wellness and liberty, Jamie is committed to amplifying solutions that promote greater personal autonomy, economic freedom and decentralization.

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