TLDR
Crypto as a technology and industry is far from dead. Prices may fluctuate widely, typical of any burgeoning industry and not every project will survive. Yet, with ongoing adoption by users, developers, and institutions, coupled with the emergence of innovative applications, cryptocurrency will continue to evolve and mature.
Boom and Bust Cycles
The cryptocurrency market has endured a rollercoaster journey since Bitcoin's launch, marked by significant boom-and-bust cycles approximately every four years. Recent times have witnessed the downfall of major entities like FTX, Celsius, and Three Arrows Capital (3AC), alongside notable protocol failures such as LUNA and heightened scrutiny from the U.S. Securities and Exchange Commission (SEC).
Despite substantial price rallies, the question "Is crypto dead?" emerges with every significant downturn, fueled by industry critics. However, a thorough assessment requires looking beyond price movements to consider broader developments. Crypto extends beyond mere tradable assets—blockchains and its groundbreaking applications are key to the industry's long-term expansion.
In this article, we will explore essential metrics for assessing the crypto markets and offer our thoughts on the industry.
Key Metrics to Evaluate the Crypto Industry and Market
Analyzing both onchain and offchain metrics is essential for a comprehensive view of the crypto industry. While there are several ways for you to track onchain metrics, the easiest way is to use a crypto analytics platform like Nansen. Nansen consolidates all relevant data you need to make an accurate investment decision into a singular platform.
Let’s look at some of the important onchain metrics and offchain metrics you need to look at.
Onchain Metrics
Onchain metrics are derived from data from the various blockchains that exist in the crypto space. As all activity on public blockchains such as Ethereum and Solana are recorded and transparent, we’re able to analyze and translate raw blockchain data into easily digestible insights.
Daily Active Users and Transactions of Blockchains
Consider blockchain networks akin to a country's economy. Just as a booming economy attracts investors and businesses, a vibrant blockchain network draws developers, projects, and investors. The number of active users and transactions on popular blockchains can significantly impact the broader crypto market and is a key indicator of adoption. For instance, a rise in both metrics on Ethereum or Solana signals a growing industry and potential for price appreciation.
With Nansen's macro dashboard, observing the number of active addresses over specific periods—be it a week, a month, or a year—across any blockchain becomes straightforward. Furthermore, Nansen's Chain Paradise dashboard facilitates a comparative analysis of active users across all supported blockchains within your chosen timeframe.
Developer Activity
Developer activity is a crucial indicator of the blockchain industry's growth potential, reflecting the number of active builders and the development of new protocols. It serves as a gauge for future industry expansion. The creation of more applications increases the likelihood of mass adoption. Developer activity can be assessed through both onchain data points, like smart contract and token deployments, and offchain data points, such as code commits.
Offchain, metrics such as the number of code commits, developer count, and their retention rate are vital. Electric Capital's annual reports provide valuable insights into these figures.
Onchain, Nansen’s macro dashboards offer an overview of smart contract and token deployments across supported chains over time, enabling a comprehensive view of developer engagement.
Total Value Locked (TVL)
TVL measures the total value of assets locked in protocols onchain, largely DeFi protocols. In other words, TVL measures the total funds users have deposited or staked onchain to participate in lending, borrowing, yield farming, liquidity provision, and other activities.
A rising TVL indicates that users have confidence in the industry, are moving more capital onchain, and carrying out more onchain activity. DefiLlama helps you track the TVL of all blockchains combined and the breakup of how much is locked on each protocol and each blockchain.
Stablecoin holdings of Smart Money Wallets
While this isn't an indicator of industry growth, it's a key metric for gauging the sentiment of some of the best onchain traders and funds in crypto. Our Smart Money labels comprise the top-performing onchain market participants and high-performing crypto funds. The stablecoin holdings chart displays the percentage of Smart Money’s portfolio that is made up of stablecoins.
The higher the percentage, the more cautious these investors are; conversely, the lower the percentage, the more optimistic they are, indicating heavy exposure to the market. Smart Money stablecoin holdings, as a percentage of their portfolio, currently sit at 5%, a level not seen since February 11, 2021. They have been heavily allocating towards other tokens since November 2023.
Offchain Metrics
Although tracking onchain metrics is essential, you need to keep track of offchain developments to get a full picture of the state of the industry. Here are a few crucial ones to watch:
Institutional Interest
Increasing interest from traditional financial institutions like banks, hedge funds, and asset managers signifies that the crypto industry is transitioning from an obscure niche to mainstream finance. With financial giants such as MasterCard, Visa, and Fidelity entering the space, crypto is emerging as a legitimate asset class. The recent approval and launch of Bitcoin Exchange-Traded Funds (ETFs) and the multiple initiatives for tokenizing real-world assets by financial giants, including BlackRock, are further signs of growing interest in the potential of blockchains and its increased adoption.
Regulatory Developments
Regulatory interest and discussions are clear indicators of the growth, relevance, and longevity of an industry. Regulators, though typically slow to react, begin to pay attention to new technology when it reaches a certain scale of adoption. Over 40 countries are prioritizing discussions to establish strong regulatory frameworks for crypto. While it's still early days and the process isn’t smooth sailing—as evidenced by the rising anti-crypto regulatory environment in the US—the significant amount of attention given to the space clearly indicates its importance.
Technological Advancements
The main superpower of the industry is its ability to innovate, experiment, and launch products at a rate faster than any other industry. Products go to market extremely quickly, and feedback loops and adoption cycles are supercharged. This opens up the potential for novel experiences and products to be built. Over the last 4 years, we’ve seen the continuous development of DeFi platforms, the emergence of social applications, gaming, stablecoins, and much more.
Every experiment run, feature launched, and product developed brings the industry a step closer to reaching escape velocity. In some parts of the world, we’re already seeing stablecoins being heavily adopted and utilized for payments and as a way to achieve more financial stability amidst their own local economies' hyperinflation.
The Future of Crypto
The future of crypto holds promising prospects despite the challenges it has faced over the past couple of years. While crypto prices have taken a hit, and some projects may struggle to recover, the industry has made significant progress in adoption and gaining regulatory clarity in certain jurisdictions. For instance, Dubai, Hong Kong, and Singapore have announced ambitions to become crypto hubs.
As young crypto startups innovate and push the boundaries of what’s possible with crypto, we're seeing the best ideas and concepts being adopted by larger mainstream companies. Large financial firms have explored using blockchain for cross-border payments, issuance of bonds, and tokenizing real-world assets. Beyond financial firms, companies in other industries such as gaming, retail, and even traditional technology companies are exploring the space.
Crypto's core promise extends beyond the affluent crowd to the unbanked, especially in countries with inflation and restrictive practices. Crypto adoption in Turkey and Nigeria are prime examples of how crypto bridges the gap. By continuing to improve the onboarding experience and capabilities within crypto, we’ll likely continue to see crypto being a safe haven for people living in economically unstable countries.
So, is Crypto Dead, and Will It Recover?
The short answer is no, crypto is not dead. However, the question of whether specific cryptocurrencies will recover is more complicated. While the industry at large will continue to grow, expand, and evolve, not every protocol will survive and grow alongside it. As with every industry, the success rate of startups is extremely low, but from the rubble, the strongest ones will not only survive but also thrive.
We’ll likely continue to see failures, face regulatory headwinds and general uncertainty. However, in the longer term the rapid pace of innovation, continued adoption and value generated to different segments of the world, will lead to the growth of the industry.
