Here I look at the exchange (red) and non-exchange (blue) volume ratios which I interpret as trading and retail volume respectively.
Retail Volume
The non-exchange volume is on average > 50% over BTC lifetime with periods of >80% not uncommon. This is extremely good in my opinion, if we interpret this as peer to peer monetary transactions of a non-speculative nature. Of course this data will also include spamming events such as network diagnostic transfers and entities distributing funds over multiple wallets, but I assume these to be negligible compared to the number of genuine financial transactions.
Financial usage (bank stocks/ETFs/coins&bullion) run to about 30%, whilst the jewellery sector alone accounts for 50% demand. Other industrial sectors demand around 20%. However if we consider (rightly in my opinion) gold jewellery to be another form of asset class, then financial applications outweigh actual industry 4:1 -> this is the kind of situation that leads to asset bubble formation, and yes the current price of gold is not supported by fundamentals. Blow all you want goldbugs... this is why the market has been in decline since 2011... If any of this is actually true, it is important that BTC's development as a medium of transaction not be allowed to stagnate!
Trading volume The periods when the retail volume ratio is almost non-existent are of course the peaks of cryptocurrency bubbles and these are infrequent. During these times trading volume spikes to above 100% (the available raw data is estimated transaction volume - so statistical in nature - consider anything greater than 1 as 100% however these are rare outliers). Most of the time the trading volume ratio seems to float between 15% and 40%. It bottoms out at <5%. These points indicate substantial buy areas and the start of new speculative activity, but of course it is not necessary for the ratio to reach such lows.
Unrecognised ATH and the Great HODL In 2013 the trading ratio peaks not in November but in April. This is due to the development of speculation not keeping up with retail adoption, which might be surprising to some - at this ATH trading tx was only slightly higher than April 2013 levels, whilst non-exchange transactions had boomed. Interestingly this also corresponds to peak decentralisation (link), but perhaps that is another topic of discussion. Anyway, after April 2013 we see a marked decline in trading ratio until the end of the 2015 bottom, where the ratio bottoms out and a new round of speculation is initiated.
This period (which Bansal calls the Great HODL) corresponds to extreme flatness in the retail ratio, which peaks at 98%.
2+2 = 5 So what does any of this mean? If I were to speculate I'd say that a wave structure exists: hodl phase, speculation phase, sell-off phase. Typical bubble formation roadmap. Please read Dhruv's article on the HODL wave for a more in depth discussion on this subject. From this it is not clear whether we are at a final sell-off or an intermediate one, e.g. like April 2013.
People may ask why adoption is important for investors. It's because the massive price movements that we saw last year and in 2013, for instance, are not "normal" Bitcoin behaviour. They are due to trading activities of speculators. The default BTC behaviour is logarithmic growth (appearing as linear on log chart). The natural tendency of information is to spread following a logistic function: en.wikipedia.org/wiki/Logistic_function
The price of Bitcoin has naturally increased at an average rate of USD 2.5 / day since entering the log growth channel in 2011. This movement is simply based on non-exchange transactions and the basic fundamentals of mining and scarcity. Based on this channel, if you had invested USD 1000 back then you would have amassed USD 6.45 million in 7 years.
You don't even have to care about the bubbles...
I'm expecting we will go roughly sideways to the channel bottom from here.
Comment
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Correction should be exponential, appears linear on semilogy charts... Logistic growth has three phases, exponential is second and logarithmic is the last phase. it's an interesting read
very interesting, worth more time looking into, Cheers
RealMcafee
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@djays1.618, thanks!
CryptoSwindle
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Interesting, how did you import those data to TV?
RealMcafee
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@cryptogast33, It is already imported by TV. You need to make sure when you type the ticker in you select Quandl from the options below the entry box. To find out what data is available search the quandl website
That is some "complicated" analysis for me to fully digest lol. But from what I can see (without looking too much into it) is
1: Those blue lines (non exchanges) are relatively more spread out back in 2011 and 2012. Whereas now its a lot more rapid. My guess is things are just happening a lot faster due to more people are in the market now.
2: Simple pattern recognition might suggest that after a "sell off" theres "speculation" and then "sell off" again. Right now BTC is in "sell off" and as the blue lines looks more rapid it could be that its done or almost done and the next stage is "speculation".
3: I don't fully understand the red lines (exchange) but again based on pattern recognition...it looks like when its in "speculation" the red lines drop.
So based on these points BTC should be very near the end of "sell off". Although if things are moving a lot faster then perhaps the next "sell off" could come "quite quick" too...say 6/7 months (which thinking about it...it coincides with how markets tend to sell off during Q1?)..Thats how I see your chart anyway.
RealMcafee
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@SaimanLi, Hi Saiman, ha well it's probably my explanation which is complicated. The blue measures proportion of off-exchange tx with respect to total tx, whilst the blue represents on-exchange tx w.r.t. total tx. So each is supposed to be a number between 0 and 1 (0 and 100%). Unfortunately because the way the data is collected, in the extreme trading peak periods we have some red values greater than 100%, but just treat them as a saturated maximum.
Basically the chart says that off-exchange trading is more stable and generally greater than on-exchange trading (which depends more on price action). But when the price really peaks the percentage of retail crashes like less than 0.001% and trading percentage soars to beyond maximum. We just had some of these events (red/trader spikes) in the last couple months, one very recently which indicates to me there is still too much volatility in the market. It can be that we have bottomed (or not) but the proportion of retail tx needs to increase as in Aug 2018 or Apr 2012 for us to see further positive growth.
I think personally, looking at this it is possible this was some kind of "half-way leg" (like Apr 2013). If so we may not see a giant sell-off like in 2010 or 2011. However if that happens the correction should be over quickly. Also look at 2014/15 and see how long it took the trading ratio to reach those same levels.
RealMcafee
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@barclayjames, should be : The blue measures proportion of off-exchange tx with respect to total tx, whilst the RED represents on-exchange tx w.r.t. total tx.