Bitcoin Active Addresses Stay Low, Rally Unsustainable?
Bitcoin has been setting records for its blockchain success. But on-chain metrics show its active addresses are declining, with far fewer users utilizing the network than originally expected. Is it a sign that the current rally may be unsustainable?
What Are Bitcoin Active Addresses?
An active address is a bitcoin address that transfers tokens between wallets during a given period. This allows observers to measure usage and determine the number of participants on the network. Generally, address activity is seen as an indication of both the currency’s adoption and its popularity.
The Number of Bitcoin Active Addresses is Declining
Unfortunately, active address numbers have been on a downward spiral. From a peak of over 1 million addresses in mid-January 2021, the number of active addresses has fallen by around 25%.
One possible explanation for this slump could be the institutionalization of Bitcoin. Instead of having smaller investors that shift funds frequently, larger ‘whales’ have moved a large chunk of coins into wallets and are essentially keeping them there and not moving them frequently.
The Impact of Fewer Bitcoin Addresses
A decrease in active addresses may indicate that the current rally is simply a bump on the way up to mainstream adoption and is not an indication that we have reached mass adoption. Because if there are significantly fewer users transacting Bitcoin, it could be an indication the currency isn’t being used as widely as thought.
There are a few potential explanations of why this might be the case. Firstly, Bitcoin’s volatile nature can put off investors who are looking for more stability with their investments. Secondly, Bitcoin’s network difficulty, high transaction costs and transaction lags can be off-putting to some. Lastly, the lack of merchant support and lack of public education on cryptocurrencies could be barriers to adoption.
Impact of Lower Bitcoin Active Addresses on Price
Many experts claim that there is a correlation between the prices of Bitcoin and its daily active addresses. As the number of active users increases, confidence grows in the coin and its price experiences a rise. However, the reverse is also true and so the current decline in active addresses could have an impact on the price of Bitcoin in the near future.
Lower numbers of Bitcoin active addresses may suggest that the current rally is not sustainable, and as covered in this article, there are potential explanations for this slump.
That said, we should also bear in mind that decreasing active addresses could be a result of institutional investors ‘hodling’ onto Bitcoin and are simply waiting for the prices to rise. Additionally, barriers to entry such as high transaction costs and lack of merchant support do not necessarily equate to a lack of interest from investors.
Thus, while Bitcoin’s lower active addresses bolster the fear that the recent surge is unsustainable, it would be unwise to view this as a sign that mainstream adoption is not possible. As always, only time will tell.
