5 Indicators of the Strong Fundamentals of the Bitcoin Network: On-Chain Analysis

5 indicators of the strong fundamentals of the Bitcoin network: On-chain analysis

Unclear bitcoin price trend, months-long sense of fear and pessimism in the cryptocurrency market, waning media and retail investor interest, and predictions of bitcoin’s price crashing to nearly $20,000. All of this effectively hides the fundamental truth of the cryptocurrency market: Bitcoin’s fundamentals are as strong as ever.

In today’s on-chain analysis, BeInCrypto looks at 5 indicators that provide a transparent case for the above statement. They are all tied to the fundamentals of the Bitcoin blockchain and at the moment – during a period of great fear and uncertainty – are at all-time highs (ATH).

The five indicators of the strong fundamentals of the Bitcoin network that will be discussed in this article are:

  1. Hash rate
  2. Lightning Network Capacity
  3. The number of addresses with a non-zero balance
  4. non-liquid offer
  5. The number of accumulating addresses

Hash rate

The hash rate is the primary indicator of the performance and security of the Bitcoin network. It measures the estimated average number of hashes per second that miners produce in the network.

The 30-day moving average hash rate reached a historical ATH of 166 EH/sec on April 15, 2021. Meanwhile, Bitcoin was setting the previous ATH at $64,850 (blue circles).

After that, the network hash rate dropped significantly, mainly due to the exodus of miners from China due to the ban on crypto mining in the Chinese provinces. At its lowest level in July 2021, the Bitcoin network hash rate was just 95 EH/s, roughly 43% lower than the ATH in April (red circles).

Since then, however, the hash rate has steadily increased and has broken new all-time records. The current value of the 30-day moving average hash rate of the Bitcoin network is 204 EH/s. Thus, this is 23% higher than the previous ATH, despite the bitcoin price being around $41,500 today (green circles).

Diagram by Glassnode

Lightning Network Capacity

The second metric that is a good metric for usage and activity on the Bitcoin network is Lightning Network Capacity. This metric indicates the total amount of BTC locked into the Lightning Network, the second layer of the Bitcoin blockchain. Its main functions are to speed up BTC transactions and reduce transaction fees.

The Lightning Network’s capacity has experienced exponential growth and tripled between April and November 2021 (the green zone). Interestingly, this time frame includes both the summer correction of BTC price with a bottom at $29,000 and the new ATH of $69,000 reached on November 10, 2021.

What is even more interesting is that despite the downtrend in the BTC market, Lightning Network Capacity continues to rise and set another ATH. The current record is 3,589 BTC and was set on April 10, 2022 (blue circle).

Diagram by Glassnode

The number of addresses with a non-zero balance

Another important indicator of the health of the Bitcoin network is the number of addresses with a non-zero balance. It measures the number of unique addresses that contain a positive (non-zero) number of BTC and is updated daily.

The 30-day moving average chart of this scale appears to be resisting any pullback. It has always been on a monotonous rise since the inception of the Bitcoin network.

The only exception is February-April 2018, which is the start of a bear market after the parabolic rally and Bitcoin’s historic $20,000 ATH from 2017 (red zone). A slight dip can also be observed during the May 2021 correction (blue area). However, on average, the number of addresses with a non-zero balance remained constant at that time.

Currently, the pointer sets a new ATH every day. On April 19, 2022, the number of addresses with a non-zero balance was 41,243,796 (green circle). This is another argument for the dynamic growth and strong foundations of the Bitcoin network.

Diagram by Glassnode

non-liquid offer

An interesting indicator on the chain is the illiquid supply of the Bitcoin network. It measures the total supply held by illiquid entities. Liquidity or illiquidity of an entity is defined as the ratio of cumulative outflows and cumulative inflows over the life of the entity. The lower this ratio, the higher the liquidity of the entity. In other words, such a title or UXTO is definitely willing to hold BTC longer than sell it.

The long-term 5-year chart of the illiquid supply ratio is also dominated by an upward trend with minor corrections. The only two major corrections after the above peak occurred in late 2017 and in April 2021 ATH (blue areas).

Interestingly, the illiquid supply continues to grow during the current Bitcoin price correction, and this growth has accelerated in the past two months. Currently, approximately 14.5 million BTC are already considered illiquid (green circle).

Diagram by Glassnode

The number of accumulating addresses

We conclude our analysis of 5 indicators of the fundamentals of the strong Bitcoin network using the Backlog Address Count Scale. This indicator measures backlog addresses, which are defined as addresses with at least two non-dust incoming transfers and the money was never spent. In addition, the indicator ignores exchange and mining addresses, and deletes addresses that were last active more than 7 years ago. Thus, it captures the number of long-term dealers quite well.

On the graph of accumulating titles going back to May 2021, we also see a somewhat monotonous upward trend. However, since mid-February 2022 – despite the decline in the price of BTC (the stock) – the growth in the number of accumulating addresses accelerated rapidly and the growth curve became steeper (black line).

Currently, the index is setting a new all-time record near 610,000 addresses that hold BTC and have never spent it. This is yet another sign of the continued accumulation of BTC and further evidence of the increasingly strong fundamentals of the Bitcoin network.

Diagram by Glassnode

For a recent Bitcoin (BTC) analysis from BeInCrypto, click here.

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