Bitcoin Network Activity Has Plunged, What is Going On?
The crypto market is recovering from the price drop earlier this month, yet the daily number of Bitcoin transactions continues to decline. This data anomaly reflects changes underway in how the flagship cryptocurrency is being used. It may reflect a greater trend moving forward.
MORE HODLING, LESS TRADING
Daily transaction activity began to grow steadily at the beginning of this year, which coincided with Bitcoin’s increase in price. Trading and mining both picked up, which added to this number. The transaction count took an abrupt turn early this month, however, as the price collapsed and the global economy fell into a tailspin.
Earlier this year the total daily transactions eclipsed 350K several times. Now it is around 275k per day and falling.
A number of factors have contributed to this decline. Lower prices have led to less mining activity, as evidenced by a notable drop in network hash power over the past few days. Most notably, Bitcoin owners have pulled thousands of coins off of exchanges, causing trade activity to decrease.
The key takeaway from these moves is that Bitcoin investors are now more interested in keeping their funds safe in personal wallets than on exchanges. Cold storage means less network activity, which can be seen in the data. Backing up this notion is the fact that the number of Bitcoin wallets continues to grow steadily as does address diversity. There are presently more than one hundred thousand more active addresses than there were at the start of the month.
FEWER TRANSACTIONS REVEALS BITCOIN IS A SAFE HAVEN
Ironically, the decline in network activity demonstrates that Bitcoin is healthy and secure. Investors moving their coins into self-controlled wallets indicates that the cryptocurrency is being treated as a safe haven during this time of global economic stress.
Also, this action helps boost Bitcoin’s value by reducing the available supply used for trading. In fact, Bitcoin advocates should worry more about too many daily transactions than too few. Presently the network can only handle about 600k transactions per day without fees and congestion becoming a problem. Until the Lightning Network, or some other scaling solution, has become more user friendly the problem of too much activity is very real.
Bitcoin transaction numbers will likely pick back up as the market recovers. Nevertheless, for now this data indicates that the cryptocurrency is functioning exactly as designed.
Do you think Bitcoin activity dropping is a bearish or bullish signal? Add your thoughts below!
Images via Shutterstock, Chart by Blockchain.com
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