Bitcoin Chain Demand Rises, But Slower Than Previous Cycles
On-chain data shows that demand for Bitcoin has been picking up recently, but the rise has been slower than previous cycles at a similar stage.
Bitcoin active addresses haven’t grown much recently
As pointed out by an analyst in a CryptoQuant post, market activity has changed rapidly following the bottom formation during previous cycles. The relevant indicator here is “active addresses”, which measure the daily total amount of Bitcoin addresses that are participating in some on-chain transaction activity.
The metric only measures unique addresses, which means that if an address is part of multiple transfers in a single day, it will still only be counted once. The indicator also takes into account both senders and recipients in this measurement.
When the value of this metric is high, it means that a large number of addresses are currently transacting on the network. Such a trend suggests that cryptocurrency is actively attracting users to trade on-chain these days.
On the other hand, low values indicate that few users are making blockchain transfers at the moment. This type of trend may suggest that the demand for the asset is currently low.
Now, here is a graph that shows the trend of active Bitcoin addresses over the last few years:
Looks like the value of the metric hasn't moved much in recent weeks | Source: CryptoQuant
As shown in the chart above, Bitcoin’s active addresses dropped to a relatively low value during the bear market, but recently some improvement has been recorded in the indicator.
In bear markets, the price usually consolidates endlessly, so many users don’t find the currency that interesting to trade. During volatile movements, however, investors rush to trade, so the metric can show high values.
A recent example of activity suddenly turning back like this can be seen around the time of the FTX collapse on the chart. As the price started to move sideways again after the crash, the active addresses also dropped again.
The metric had some increase with the last rise in Bitcoin price, but the increase is still not very significant. In comparison, the 2018-2019 cycle saw activity skyrocket after the bottom of the bear market formed.
The quant has also attached the yearly active trending price oscillator (DPO) addresses to better illustrate the difference between the current cycle and the previous cycle. As is visible from the chart, the trend in the DPO is only showing the first signs of the bear market breaking out so far in the current cycle.
“Right now, fears external to the network may be affecting total demand returns and delaying a sharper improvement in network fundamentals,” explains the analyst. “The understanding of a possible turbulent year in terms of macroeconomic conditions has not yet enabled a feeling of greater risk appetite and investors remain cautious.”
At the time of writing, Bitcoin is trading around $23,700, down 1% over the past week.
BTC has declined recently | Source: BTCUSD on TradingView
Featured Image of Dmitry Demidko at Unsplash.com, Charts by TradingView.com, CryptoQuant.com