Bitcoin Network Activity Index Points to Price Growth

A Drop in Activity is Marked by a Sharp Decline in Transactions

According to a CryptoQuant analysis, the Bitcoin Network Activity Index has been down 15% since November 2024’s record high and stands at 3,760 as of Friday morning, its lowest level since February 2024. The index is a cumulative measure of active addresses, number of transactions, block size, and fees among other bitcoin metrics to indicate growth or a drop in Bitcoin usage.

A drop in activity is also evident in the Bitcoin mempool, or a collection of all unconfirmed Bitcoin transactions waiting to be included in a block by miners. Mempool volumes plummeted from a high of 287,000 in December to just 3,000 as of Thursday, a slide of nearly 99% to levels not seen since March 2022.

Lower Use of Runes Protocol May be Behind the Plunge

CryptoQuant said lower use of Runes Protocol, a relatively new way to issue fungible tokens directly on Bitcoin, may be behind the plunge. The protocol uses OP RETURN codes in Bitcoin transactions to write data about token mints and transfers on the network.

When the Runes protocol emerged in April 2024, the daily number of OP RETURN codes spiked to 802K. However, the number of OP RETURN codes has plummeted since, with only 10K OP RETURN codes used.

Demand from Long-term Accumulator Addresses Signals Potential Price Growth

However, the drop in activity may not directly affect bitcoin prices, which are seen as likely to grow because demand from long-term accumulator addresses has increased in recent weeks. Such a spike is historically associated with a rally in the BTC price and signals the overall perception of the asset as an investment asset or store of value.

Permanent holders are addresses that accumulate BTC over time and never engage in spending transactions, indicating a long-term holding strategy that creates a lack of sell-side pressure.

Conclusion

Despite a drop in Bitcoin network activity, the CryptoQuant analysis suggests that the demand from long-term accumulator addresses may signal potential price growth in the months ahead. As the asset’s overall perception as an investment asset or store of value continues to increase, the price of Bitcoin is likely to rally.

FAQs

Q: What is the Bitcoin Network Activity Index?

A: The Bitcoin Network Activity Index is a cumulative measure of active addresses, number of transactions, block size, and fees among other bitcoin metrics to indicate growth or a drop in Bitcoin usage.

Q: Why has the Bitcoin Network Activity Index been down 15% since November 2024’s record high?

A: According to CryptoQuant, lower use of Runes Protocol may be behind the plunge, resulting in a decrease in OP RETURN codes and a decline in network activity.

Q: What is Runes Protocol?

A: Runes Protocol is a relatively new way to issue fungible tokens directly on Bitcoin. It uses OP RETURN codes in Bitcoin transactions to write data about token mints and transfers on the network.

Q: What is the significance of demand from long-term accumulator addresses?

A: The demand from long-term accumulator addresses is historically associated with a rally in the BTC price and signals the overall perception of the asset as an investment asset or store of value.