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The data shows that active bitcoin addresses have plummeted despite high demand for transactions; this is why this may be happening.
Active bitcoin addresses have plummeted recently
According to Glassnode’s latest weekly report, the number of active addresses is at a cyclical low of 566,000. The “active addresses” metric measures the daily number of unique bitcoin addresses involved in some transactions on the blockchain.
By “unique” here we mean that the indicator only checks if the address has participated in the transfer at least once. This means that no matter how many transactions an address can make, its contribution to the metric of active addresses will remain only one unit.
This limitation exists because the number of unique addresses can be analogous to the number of unique users visiting the blockchain, thus providing an estimate of daily users on the network.
Another indicator created to track activity on the Bitcoin blockchain is “transaction count”, which, as its name suggests, tells us the total daily number of transfers taking place on the network.
When this indicator is high, it naturally means that there are a lot of transactions going on in the blockchain. Such indicator values suggest high demand for network usage at present, but the metric can’t say anything about how activity is distributed; that’s where the active addresses indicator comes in.
Now here’s a chart that shows the trend in 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 skyrocketed recently | Source: Glassnode Network Week – Week 20, 2023
As shown in the chart above, the number of bitcoin transactions has been growing rapidly recently and has reached a new all-time high of around 682,000 daily transfers.
The reason for this dramatic increase in the number of transactions is the emergence of BRC-20 tokens, fungible tokens created on the BTC blockchain using the Ordinals protocol (a way of embedding data such as text and images directly on the chain).
These BRC-20 tokens started a new memcoin mania, with PEPE being the largest example of such a coin. The insanely fast popularity of these tokens means that the demand for transactions on the network is greater than ever before.
What about active addresses? Is this number growing too?
Looks like it has dropped recently | Source: Glassnode Network Week – Week 20, 2023
The graph shows that the number of active addresses initially grew, but then it fell to 566,000 addresses per day, which is close to the current cyclical low.
This would mean that while the demand for transactions is very high right now, the demand is not really coming from a large number of users, but from a rather small number of them who are constantly making repeated transfers.
“This is a curious scenario where many BRC-20 users seem to have reused their bitcoin addresses,” explains Glassnode. “Perhaps due to more familiarity with how account-based chains like Ethereum or Solana work, and less so with the Bitcoin UTXO system.”
At the time of writing, Bitcoin is trading around $27,400, down 1% over the past week.
BTC has jumped in the last 24 hours | Source: BTCUSD on TradingView