Activity on the blockchain suggests a longer bear market

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Activity on the blockchain suggests a longer bear market

The recent price recovery will require increased demand and fees spent across the network to continue, Glassnode claims. An estimate of the market's growth over the past week came from blockchain analytics firm Glassnode in its latest report, The Week On Chain, dated August 1.

In it, analysts pointed to stagnant transaction demand, the number of active Bitcoin addresses remaining in a “well-defined downward trend” and lower network fees as reasons to dampen investor excitement over Bitcoin's 15% jump in price over the past week.

However, Bitcoin is currently down 2% in the last 24 hours and is trading below 23,000 according to CoinGeck. The report begins by highlighting the characteristics of a bear market, which includes a decline in activity on the chain and a shift away from speculative investors to long-term hodlers.

This suggests that the Bitcoin network still exhibits each of these traits. Glassnode wrote that the decline in network activity can be interpreted as a lack of new demand from speculative traders versus long-term holders (LTH) and investors who have a high level of confidence in the technology.

The report states: "With the exception of a few spikes in activity during major capitulation events, current network activity suggests that little inflow of new demand still remains." Glassnode refers to the steady decline in active addresses as a “bear market demand profile” that has been in place since last December.

The analysis revealed similarities

The analysis revealed similarities between the current pattern of network demand and the one established in the period 2018-2019. Similar to the previous cycle, network demand dried up after the record high price of Bitcoin in April 2021.

There was a significant recovery in demand until the following November when prices recovered to a new ATH. However, since last November, demand has been on a downward trend, with a big spike during the massive sale in May.

"The bitcoin network is still dominated by HODLers, and so far there hasn't been any significant return of new demand." Glassnode added that weak demand from anyone other than dedicated Bitcoin enthusiasts is pushing network fees into “bear market territory”.

Over the past week, daily fees were only 13.4 BTC. In contrast, when prices hit their ATH last April, daily network fees exceeded 200 BTC. Assuming fee rates increase to any noteworthy extent, Glassnode suggests this could mean demand is on the rise and the bear market is nearing an end.

“While we have yet to see a significant increase in fees, tracking this metric is likely to be a signal of recovery”.