Author: Anthony Bertolino Edit: Summer
After the Internet bubble dust settled, we witnessed the rise of the unique Internet companies from the ashes, bringing great value to users. Not only does this attract hundreds of millions of users, but it also translates into a significant increase in the price of the underlying stock.
History tends to repeat itself, and we can look back at the past of the Internet and see what the future of crypto assets will look like. Although the history of using encrypted assets has been around for a few years, there are already some valuable indicators in the field that can help us predict the future.
Spoiler warning: The future of encrypted assets is likely to be similar to the history of the Internet.
Before discussing these indicators, we briefly review the growth history of the Internet and Internet-based stocks.
"70% of the rise in Internet stock prices is only due to the development of the Internet."
— Thomas Lee, Fundstrat The chart below shows the new user growth trend for Gmail in 2006-2018.
As you can see from the above chart, the growth of individual users using Gmail is amazing: from 2006, there were only a few million users, and after 20 years, it reached more than one billion users. In just 20 years, Gmail users have grown more than 100 times . The chart below shows Google's stock price movement from 2006 to 2019.
As you can see from this picture, Google's stock price trend is very similar to Gmail's user growth trend. The chart above shows that Google's stock price has risen from nearly $170 in 2006 to more than $1,200 in 2016. This does not include the 2014 stock split. Considering this stock split, investors have achieved a return on investment of nearly 1,400% in just 20 years. Let's look at an example to get more data. Let's take a look at the growth of Internet users over the past 20 years (see below), rather than just focusing on one or two companies.
The growing trend of Internet users. Source: DART Consulting
The chart above shows that Internet users have grown from about 40 million in 2006 to nearly 400 million in 2016. In the past 20 years, users have grown nearly 10 times . We compare the growth of Internet users with the growth trend of the First Trust Dow Jones Internet Index Fund (FDN). The figure below shows a huge increase in FDN over the same time period.
Perhaps most people will say: "Just because we see that the number of users on the Internet clearly reflects the rise in Internet stock prices, it does not mean that the same happens in the field of encryption." This may indeed be the case. But if I tell you, this situation is already happening?
The chart below shows the trend of daily trading volume of the Ethereum network in 2015-2019. Although the volume of transactions has soared in the fourth quarter of 2017 due to crazy speculation, the growth in the past four years has been staggering.
In October 2015, the Ethereum network handled only 6,000 transactions per day, but by October 2019, the Ethereum network handled more than 700,000 transactions per day. In just four years, the daily trading volume of the Ethereum network has increased by 100 times .
The chart below is the historical price trend of ETH, which is almost the same as the Ethereum network daily trading volume trend chart above , but with one difference.
The difference is that the price of ETH has fallen far more than the volume of transactions. This finding led Chris Burniske (a partner of the crypto investment firm Placeholder VC) to remind investors in his book that the price of crypto assets fell more than the fundamentals. The chart below shows the growth in the number of active addresses in the Ethereum network. This shows that the number of active accounts/users of the Ethereum network has shown steady growth.
The chart below shows the growth trend of the ETH market value (that is, the price of ETH multiplied by the total amount of ETH in circulation). It can be seen that the growth trend of the following figure is almost indistinguishable from the growth trend of the number of active addresses in the above figure (although it measures completely different objects).
The last chart is a comparison of the growth trend of the ETH price (blue line) with the number of new addresses (red line) of the Ethereum network.
As you can see, the ETH price in the above picture almost always corresponds directly to the number of new addresses. For innovative investors, current market conditions and information asymmetry temporarily make ETH's trading far below its basic value. In the past four years, Ethereum has experienced explosive development, not only from the perspective of speculation, but also from the valuable use cases in the real world . This trend will not only continue, but will also produce the combined effect of Metcalfe's law (ie, the greater the number of users on the network, the greater the value of the entire network and each computer within the network).
If you want to know why Ethereum will continue to be the dominant public chain, just look at the network effect around Ethereum and the friendly developer ecology.
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