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On a day when Bitcoin prices are falling, showing an alarming drop from the April 2023 peaks, the underlying network is processing record-breaking transactions.
Bitcoin prices are falling, but why?
Data from Dune Analytics as of May 1 shows that the platform is processing record transactions, which, based on historical performance, usually indicate demand. In the usual scenario, this demand could lead to buying pressure.
However, as seen in the chart below, the spike in activity on the Bitcoin network is due to the Ordinals collection of non-fungible tokens (NFTs). Demand for these assets disrupted the normal dynamics within the network.
We can see a shift in preference as it relates to inscription types.
Image Inscriptions 🟧 dominated until very recently, but have been surpassed by text based 🟦.
Over 2.39M Inscriptions have been added to the #Bitcoin ledger, adding 9.3GB in data, and paying 212 $BTC in fees. pic.twitter.com/KZPy074WoP
— glassnode (@glassnode) April 30, 2023
In this sense, despite strong block demand, BTC prices have fallen 4% over the past 24 hours, down 10% from their April 2023 peaks, and are likely to break critical support levels immediately. Notably, sellers quickly rolled back profits on April 27.
While Bitcoin prices remain under pressure at writing, the coin is in a wider trading range. Key reaction points remain at $31,000 at the top, a level flashing with April 2023 peaks, and $26.5k at the bottom, a support level marking the 38.2% Fibonacci retracement level in the March to April trading range .
Bitcoin Price May 1 | Source: BTCUSDT on Binance, TradingView
Moreover, BTC has gained about 60% since mid-March 2023, floating higher as financial markets feared another crash in the US banking sector. The Silicon Valley Bank (SVB) faced massive bankruptcy in March, while two more crypto-centric banks, including Signature Bank, closed.
High Network Activity, the New Normal for BTC?
Bitcoin prices are now cooling down looking at performance on the daily chart. This is despite positive news based on blockchain activity.
According to Dune Analytics, the Bitcoin network has processed more transactions than on any other day since its launch 14 years ago.
On May 1, on-chain data showed that the platform had processed 568,300 transactions, up 78,000 from the peak periods of Bull Run 2017.
Despite the explosive growth in activity, an analysis of a portion of processed transactions showed that more than 50%, or 307,000, were inscriptions from bitcoin ordinals.
Dune’s data shows captions are up 16% since April 29 and are on an upward trend, indicating an increase in user demand. Bitcoin Ordinals allow users to attach or “fit in” files on the Bitcoin network, including applications, videos, audio, images, texts, and more.
These files are unique, “registered” at the Satoshi level and permanently stored in Bitcoin blocks. The more files are written, the more transactions, which explains the “spike” in the number of transactions on the network processed in recent days.
As of May 1, over 2.9 million files were attached to the Bitcoin network, with the average number of entries rising from less than 10,000 in early February to over 300,000 in early May 2023.
As mentioned above, the rapid growth of “records” does not necessarily lead to demand for BTC. The core network is a transaction layer that allows funds to be transferred. It is not designed for file storage, which can reduce the appeal of the most valuable blockchain and slow down the demand for BTC, leading to a constant spike in transaction rates.