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Bitcoin’s Q1 Price Rise Nears 70% But low Network Activity Points to a Long Term Plan

Last Updated April 10, 2024 12:53 PM
Nikola Lazic
Last Updated April 10, 2024 12:53 PM

Key Takeaways

  • Bitcoin’s price surge contrasts with declining network activity.
  • Falling exchange reserves signal potential price surge.
  • Market indecision ahead of Bitcoin halving event.

In the first quarter of 2024, Bitcoin showcased a remarkable contradiction: its price soared nearly 70% to a record of nearly $74,000, yet the Bitcoin network saw a decrease in activity, with fewer transactions and active users than in previous months. 

This anomaly, highlighted in Messari’s “State of Bitcoin Q1 2024” report, suggests that while the cryptocurrency’s value climbed to new heights, partly thanks to the enthusiasm around the approval of spot Bitcoin ETFs, the actual use of the network diminished. 

This trend of rising prices amidst falling network engagement has sparked curiosity about the future direction of Bitcoin, hinting at a potentially more strategic, long-term approach by investors to the digital asset’s growth and utility.

Bitcoin Low Network Activity Could Be Bullish

A recently published report  from Messari, titled “State of Bitcoin Q1 2024” revealed a decrease in user engagement on the Bitcoin network. Over a 90-day span, the network saw a demand reduction, with the daily average of active addresses dropping 5% to 895,000 from the previous quarter’s 937,000. 

Messari overview

This dip in active users led to a 15.3% fall in the average daily transactions. The decline was attributed to a potential decrease in bot or “super user” activity, typically frequent transactors who account for a substantial volume of activity on the network. 

Messari data

Concurrently, average daily transaction fees on the Bitcoin network plummeted by 42% due to the reduced number of transactions from $5.45 million in the previous quarter to $3.2 million in the last. 

Bitcoin’s exchange reserves  have recently dipped below 2 million BTC, marking less than 10% of its circulating supply and signaling a potential for an imminent price surge. This dramatic fall in reserves to 1.94 million BTC, as per CryptoQuant data, reflects a growing trend among investors to hold Bitcoin for the long term rather than engage in immediate trading. 

CryptoQuant data

This behavior suggests a looming supply shock, characterized by a sudden drop in available supply on exchanges amidst rising demand, potentially leading to a significant price increase. 

Contributing to this scenario is the anticipated Bitcoin halving event, which further constrains new supply by halving miners’ rewards every four years, thus amplifying the supply shock effect. 

Bitcoin Price Undecisive 

Bitcoin’s price remains within its symmetrical triangle bounds. After reaching its all-time high of $74,000 on March 13, we saw a 17% decrease to a low of $60,800 on March 20. Since then it attempted to continue its uptrend but failed to break out from the descending resistance on April 8, making another downturn. 

Daily chart

As BTC is now traded below $69,000, two possibilities are ahead. In the bearish scenario, we saw the completion of the significant uptrend from January on March 13, in which case the triangle structure is a consolidation before the price reverses. If this happens, we could see Bitcoin headed toward the $57,000 area or below the 1.618 Fibonacci extension level at $53,500. 

However, this triangle is only a temporary stop in the bullish case before it can increase and make a new all-time high above $80,000. A breakout direction will first hint at the next likely prevailing trend. 

With halving coming in just 10 days, it is understandable why the market is indecisive. However, new volatility should be expected with a significant catalyst around the corner. 

Disclaimers

Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.

 

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