Bitcoin Transaction Volume has Dropped to its Lowest Since 2011 – And it is a Positive Sign

Journalist:
May 7, 2014
The Bitcoin Transaction Volume is Dropping.

Bitcoin transaction volume is dropping. Yesterday the transaction volume dropped to the lowest since 2011. Only 69,152 BTC were traded. What does it mean? Looking at the data, taken from Blockchain, we can see a clear decline in Bitcoin volume since November/December of 2013, when the Bitcoin volume was at 345,628 BTC with a peak in the middle of March with 441,337 BTC.

Looking at the same volume chart, but this time showing volume in USD, the transaction volume yesterday was at just over $30 Million. We must be aware of the drop in Bitcoin price and how this affects the transaction chart, but that being said; both charts exhibit the same trend – Bitcoin volume is now in decline.

Graph of the Bitcoin Transaction Volume for the last two years from blockchain.info

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[dropcap size=small]L[/dropcap]ooking at Google trend for Bitcoin, we see a similar picture of the search volume for Bitcoin. The one-year transaction volume chart in USD merely acts to confirm the Google trend. What causes this? Let me try to interpret the trend.

Bitcoin value has fallen since the last quarter of 2013 and showed a dramatic increase up to this point. There are still traders, active in the market, holding bitcoins. More bitcoins are also entering the market from mining. Holding bitcoins over a longer term will decrease trade volumes and act to drive down the price as an effect of inter-exchange arbitrage, commissions and apparent lack of interest. This in turn may well force some traders, currently committed to Bitcoin, to withdraw from the market. This will certainly push an already depressed price further down.

Bitcoin Supply Contraction

There is also the strong possibility, probability even, nay certainty, that there will be a supply contraction shortly. This means that people will look at their holdings and will decide to hold. Nobody chooses to sell at the bottom, and therefore, investors traditionally decide to hold and await the turn or upside. The fact that the Bitcoin price has stabilized around the $440 to $450 mark could be an indication that this is already taking place.

There is another factor. In January, had someone tried to sell a Bitcoin at a price of $500, that would have been a bargain. When the price of a Bitcoin was, in fact, $500, then people would rush in to buy only at a price of $400. Maybe there is evidence that investors are standing back and waiting to see what the price will do. Nobody wants to buy a stock until they can see either a bottom or a rise. Perhaps the fact that the Bitcoin market cap is four times higher than it was in November is an indication that people are still choosing to use bitcoins as a source of investment than as a currency.

Perhaps, Bitcoin advocates are viewing the current situation as an opportunity to hold and await a future opportunity to acquire. The holding of Bitcoins could actually be a sign of confidence. There have been 12.7 Million bitcoins mined, contrasting this to the transaction volume it shows that the vast majority are choosing to hold their bitcoins.

Featured image by Shutterstock.

Last modified (UTC): May 7, 2014 14:35

PJ Delaney @P.J. Delaney@delboyir

Masters in Public Administration, Bachelors in Mgt., I live in Ireland, I have a bit of a background in Economics and lots of opinions on everything else.