Even though prices for Ethereum (ETH 3.19%) are down significantly since it hit an all-time high of almost $4,900 in November 2021, the blockchain is showing a resurgence in activity for the first time in quite a while. One of the primary metrics to gauge activity is the rate at which new smart contracts are being created.
Ethereum was the first blockchain to offer smart contracts. They allow developers to program actions that are only triggered when a set of specific parameters are met, and remove the need for any intermediary. Smart contracts are the backbone of many decentralized applications running on Ethereum, and the rate at which they are created can provide valuable insight into how much the blockchain is being used. Typically blockchain use is a reflection of demand and subsequently price action. As a blockchain is in more demand, prices tend to follow suit.
Activity leads to demand
It turns out that the number of smart contracts being created in the past few weeks could hint at some respite from Ethereum's 2022 lows. Based on recent figures from the Messari database, smart contract creation is at its highest levels since the bull run of 2021. After an 18-month lull and only one day with more than 25,000 contracts created, Ethereum experienced an uptick in activity this past October. To close out the last quarter of 2022, Ethereum posted eight days of more than 100,000 contracts created and consistently registered days of more than 50,000.
Perhaps the increase is only related to a renewed sense of hope now that the new year has arrived. Maybe it's related to anticipation of Ethereum's next upgrade tentatively scheduled for March. There could be countless reasons this is happening and while no one likely has the exact answer, I believe this may suggest the start of a long-term trend.
This renewed level of activity could be viewed as representative of a bottom for Ethereum's price. The level of smart contract creation seems to precede price movements. Notice the elevated number of smart contracts being created before Ethereum's all-time high in November 2021. Furthermore, look at how it only took a few months for Ethereum's price to fall when smart contract creation slowed in July of 2021. In both instances, smart contract activity preceded price movement.
Zooming out from short-term data
Although the pick-up in smart contract creation might catch the attention of those looking for price swings in the short term, this trend should be observed more closely by long-term investors. Although I don't think this uptick means another bull run (like the one that sent Ethereum to an all-time high) will occur anytime soon, the increased rate in smart contract creation should serve as a vote of confidence that development can still happen, even in a bear market. After virtually no smart contract creation, an increase back to 2021 levels is more than encouraging.
After a horrible 2022, the optimistic outlook for Ethereum in 2023 would be sustained levels of activity on the network and some sort of gain in price. Ideally, a similar stretch will occur like the one from 2019 to 2020, when smart contract creation was elevated and consistent. If this were to happen, it could give Ethereum its next leg up.
However, the goal isn't to try to time the market. Rather, investors should use data like smart contract creation to help paint a clearer picture of long-term trends. And this data suggests that smart contract creation ebbs and flows, precedes price moves, and can be helpful in measuring network demand.
So, with revived levels of activity I am optimistic that Ethereum's price might have already bottomed. If true, then buying today looks less risky and more attractive over the long haul because the worst just might be over for Ethereum.
