On a day when Bitcoin prices are crashing and posting worrying declines from April 2023 peaks, the underlying network is processing record transactions.
Bitcoin Prices Fall, But Why?
Dune Analytics data from May 1 shows that the platform is processing record transactions that, given historical performance, would typically indicate demand. In a normal scenario, this demand could translate into buying pressure.
However, as can be seen in the chart below, the spike in activity on the Bitcoin network is attributed to the non-fungible token (NFT) collection “Ordinals”. The demand for these assets has disrupted the normal dynamics in the chain.
We are seeing a shift in preference when it comes to inscription types.
Image inscriptions 🟧 dominated until recently, but have been surpassed by text-based 🟦.
More than 2.39 million inscriptions have been added to the #Bitcoin ledger, add 9.3 GB of data and pay 212 $BTC in fees. pic.twitter.com/KZPy074WoP
— glassnode (@glassnode) April 30, 2023
In this sense, despite high demand for blocks, BTC prices are down 4% in the last 24 hours, down 10% from their April 2023 peaks, and critical support levels are likely to disappear immediately. Sellers, in particular, quickly reversed April 27 gains.
While Bitcoin prices remain under pressure as of writing, the coin is within a wider trading range. Key reaction points remain $31,000 on the upside, a level that flashes with the April 2023 highs, and $26.5k on the downside, a support level marking the 38.2% Fibonacci retracement level of the March to April trading range.
In addition, BTC was up around 60% from mid-March 2023, driving higher as financial markets feared another collapse in the US banking sector. Silicon Valley Bank (SVB) experienced a bank run in March as two more crypto banks, including Signature Bank, closed their doors.
High chain activity, a new normal for BTC?
Bitcoin prices are now cooling down, looking at the performance in the daily chart. This despite positive news based on blockchain activity.
According to Dune Analytics, it has Bitcoin network incorporated more transactions than any other day since launch 14 years ago.
As of May 1, on-chain data showed the platform was processing 568,300 transactions, 78,000 more than it processed during the peaks of the 2017 Bull Run.
While activity has exploded, an analysis of the proportion of transactions processed showed that more than 50%, or 307,000, were subscriptions of Bitcoin Ordinals.
Dune data shows that enrollments are up 16% from April 29, maintaining an upward trend indicating increased user demand. The Bitcoin Ordinals allow users to add or “subscribe” files to the Bitcoin network, including apps, videos, audio, images, texts, and more.
These files are unique, “inscribed” at the Satoshi level and permanently stored on Bitcoin blocks. The more files are enrolled, the more transactions there are, which explains the “spike” in the number of on-chain transactions processed in recent days.
On May 1, there were more than 2.9 million files connected to the Bitcoin network, with the number of average enrollments rising from less than 10,000 at the beginning of February to more than 300,000 at the beginning of May 2023.
As mentioned above, the meteoric rise of “subscriptions” does not necessarily translate into a demand for BTC. The underlying network is a transaction layer that facilitates the transfer of money. It is not intended for file storage, a development that could erode the appeal of the most valuable blockchain and slow demand for BTC, leading to a permanent spike in transaction levels.
Feature image from iStock, chart from TradingView
