Bitcoin active addresses drop sharply despite transaction demand, why?

The data shows a sharp decline in bitcoin active addresses despite high transaction demand; Why is this happening here?

Bitcoin Active Addresses Have Seen a Sharp Drop Lately

As per the latest weekly report of glassnodeActive addresses are at a cyclical low of around 566,000. The “active addresses” metric measures the daily number of unique bitcoin addresses participating in some transactional activity on the blockchain.

By “unique”, here it is meant that the pointer only checks whether an address is included in the transfer at least once. This means that no matter how many transactions an address does, its contribution to the metric of active addresses will be only one unit.

This restriction exists because the number of unique addresses can serve as an analog to the number of unique users visiting the blockchain, thus providing an approximation to the daily users on the network.

Another indicator created to track activity on the bitcoin blockchain is the “transaction count”, which, as its name suggests, tells us the daily total number of transfers that take place on the network. Is.

When this metric has a high value, it naturally means that there are many transactions on the blockchain. Indicator values ​​like these indicate high demand for currently using the network, but the metric can’t say anything about how the activity is distributed; This is where the indicator of active addresses comes in handy.

Now, here’s a chart showing the trend of the number of bitcoin transactions (as well as its 30-day and 365-day simple moving averages) over the entire history of the asset:

The value of the metric seems to have sharply surged recently | Source: Glassnode's The Week Onchain - Week 20, 2023

As shown in the graph above, the number of bitcoin transactions has seen a sharp increase recently and has reached a new all-time high of around 682,000 daily transfers.

The reason behind this explosion in the number of transactions is the emergence of BRC-20 tokens, alternative tokens created using the Ordinals protocol (a way of inscribing data such as text and images directly into the chain) on the BTC blockchain.

These BRC-20 tokens have started a new memecoin craze, with PEPE being the biggest example of such a coin. The exponential popularity of these tokens means that the demand for transactions on the network is higher than ever.

What about active addresses though? Is this indicator also rising?

Looks like the metric has plunged recently | Source: Glassnode's The Week Onchain - Week 20, 2023

From the chart, it is clear that active addresses first saw an increase, but then fell to a value of 566,000 addresses per day around the current cyclical low.

This would mean that although the demand to transact is very high right now, the demand is not actually coming from a large number of users but a small number of them who are making frequent frequent transfers.

“It is a curious scenario, given that many BRC-20 users seem to have reused their bitcoin addresses,” Glassnode explains. “Probably due to being more familiar with how account-based chains like Ethereum or Solana operate, and less so with the bitcoin UTXO system.”

btc price

At the time of writing, bitcoin is trading around $27,400, down 1% over the past week.

BTC has shot up over the last 24 hours | Source: BTCUSD on TradingView

Featured Image from Kanchanara on Unsplash.com, Chart from TradingView.com, Glassnode.com