The Bitcoin Network Activity Index, a comprehensive measure of active addresses, transaction numbers, block size, and fees, among other Bitcoin metrics, has declined by 15% since its record high in November 2024, according to a recent analysis by CryptoQuant. As of Friday morning, the index stood at 3,760, its lowest level since February 2024, indicating a drop in Bitcoin usage.
The decrease in activity is primarily marked by a significant reduction in the number of transactions. The daily total number of transactions has fallen to 346,000, a sharp decrease of 53% from a peak of 734,000. This decline in network activity is also reflected in the Bitcoin mempool, a collection of all pending Bitcoin transactions awaiting confirmation by miners. Mempool volumes have plunged almost 99% from a December high of 287,000 to just 3,000 as of Thursday, reaching a level not seen since March 2022.
CryptoQuant points to a decrease in the usage of the Runes Protocol as a possible explanation for the decline. The Runes Protocol, a relatively new method of issuing fungible tokens directly on Bitcoin, has seen a drop in usage. This is evident in the daily total number of OP RETURN codes in Bitcoin transactions, which the Runes Protocol utilizes to record data about token mints and transfers on the network. “In April 2024, when the Runes protocol first emerged, the daily number of OP RETURN codes spiked to 802K. However, the number of OP RETURN codes has since plummeted, with only 10K OP RETURN codes used,” the firm elaborated.
Despite the drop in network activity, Bitcoin prices are not expected to be directly impacted. Prices are anticipated to rise as demand from long-term accumulator addresses has surged in recent weeks. Historically, this uptick signals strong confidence and is often a precursor to price rallies. These long-term holders, or permanent holders, are addresses that accumulate Bitcoin over time without engaging in spending transactions. This long-term holding strategy leads to a lack of sell-side pressure, further reinforcing the potential for price growth.
The decline in network activity and the increase in demand from permanent holder addresses provide a fascinating juxtaposition in the current state of Bitcoin. While the decrease in activity could be construed as a lack of interest or stagnation, the rise in permanent holders signals a strong belief in Bitcoin’s long-term value. As always in the cryptocurrency world, these trends will be watched closely for their potential impacts on Bitcoin’s future.
