Bitcoin crashes, but transactions hit new highs
On a day when Bitcoin prices are crashing, posting worrying falls from April 2023 peaks, the underlying network is processing record transactions.
Bitcoin prices are falling, but why?
Dune Analytics data as of May 1 shows that the platform is processing record transactions which, based on historical performance, would typically point to demand. In a normal scenario, this demand can be translated into buying pressure.
However, as seen in the chart below, the increase in activity on the Bitcoin network is attributed to the non-fungible token (NFT) “Ordinals” collection. The demand for these assets has disrupted the normal dynamics of the chain.
We can see a shift in preference when it comes to inscription types.
Image inscriptions 🧧 dominated until very recently, but have been overtaken by text-based 🦦.
Over 2.39 million inscriptions have been added #Bitcoin ledger, adds 9.3 GB of data and pays 212 $BTC in fees. pic.twitter.com/KZPy074WoP
— glassnode (@glassnode) 30 April 2023
In that sense, despite the high blockchain demand, BTC prices have fallen 4% in the last 24 hours, crashing 10% from April 2023 peaks, and are likely to clear critical support levels immediately. In particular, sellers have quickly reversed the gains from 27 April.
While Bitcoin prices remain under pressure at the time of writing, the coin is within a wider trading range. Key reaction points remain at $31,000 on the upside, a level that flashes April 2023 tops, and $26.5k on the lower end, a support level that marks the 38.2% Fibonacci retracement level in the March to April trading range.
Also, as of mid-March 2023, BTC rose by about 60%, floating higher as financial markets feared another meltdown in the US banking sector. Silicon Valley Bank (SVB) experienced a bank run in March while two more crypto-centric banks, including Signature Bank, closed shop.
High on chain activity, a new normal for BTC?
Bitcoin prices are cooling now, look at the performance in the daily chart. This despite positive news based on blockchain activity.
According to Dune Analytics, the Bitcoin network has Processed more transactions than any other day since its launch 14 years ago.
On May 1, on-chain data showed the platform processed 568,300 transactions, 78,000 more than it processed at the peaks of the Bull Run in 2017.
Although activity has exploded, an analysis of the portion of transactions processed showed that over 50%, or 307,000, were inscriptions from Bitcoin Ordinals.
Dune data shows that the number of endorsements is up 16% from 29 April and maintains an upward trend that points to increasing user demand. Bitcoin Ordinals allow users to attach or “write in” files to the Bitcoin network, including apps, videos, audio, images, texts, and more.
These files are unique, “enrolled” at the Satoshi level, and permanently stored on Bitcoin blocks. The more files entered, the more transactions there are, which explains the “spike” in the number of on-chain transactions processed in recent days.
As of 1 May, there were over 2.9 million files linked to the Bitcoin network, with the number of average inscriptions rising from less than 10,000 in early February to over 300,000 in early May 2023.
As mentioned above, the rapid increase of “inscriptions” does not necessarily mean the demand for BTC. The underlying network is a transaction layer that enables the transfer of funds. It is not intended for file storage, a development that could weaken the appeal of the most valuable blockchain and slow BTC demand leading to a permanent increase in transaction levels.
Feature image from iStock, chart from TradingView
