One of the main aspects of on-chain analysis is the examination of transactions across the network. In contrast to exchange-related transactions, which often lead to price volatility, off-exchange transactions demonstrate the usefulness of the network as potential payments between users. It makes a positive contribution to the long-term development of the network if the users interact with each other. Therefore, it is necessary to examine the behavior of the transaction across the network.
The recent surge in Bitcoin flows to exchanges worries many, but is it negatively affecting the entire network from a macro point of view? (source)
In terms of the sum of all internal exchange transactions, the number of transactions traded within exchange wallets has been declining from the peak of May 2021. This means that there is no significant transfer activity through the market. It looks different from previous price cycles when this number was strongly correlated with price action.
Transactions within stock exchange portfolios are in a downtrend. (source)
Meanwhile, the total number of deposits and withdrawals to and from exchanges has decreased, indicating that people may be less involved in exchanges.
Deposits on the stock exchanges fell. (source)
Withdrawals from exchanges are also decreasing. (source)
In addition, the number of transactions from all exchanges to derivatives exchanges has decreased as evidence that derivatives trading is not very attractive at the moment.
Fewer transactions on derivative exchanges. (source)
In the meantime, there is no further possibility of cumulative selling pressure due to the significant decrease in the number of transactions from all exchanges to spot exchanges. This offers the slightest encouragement and mitigates bearish sentiments among stakeholders.
Less potential for selling pressure on spot exchanges with fewer bitcoins on spot exchanges. (source)
At the same time, the total number of transactions increased in contrast to the downward trend in transactions related to the stock exchange. It means increased supply/demand outside of exchanges, which leads to higher usage of the Bitcoin network.
High utility of the network, as the total number of transactions increases and the number of exchange transactions decreases. (source)
Network Value to Transaction (NVT) is the ratio of market capitalization divided by transaction volume. This helps to measure the relativity between network value and network usage where transaction volume represents network usage. The drop in NVT proves that the velocity of currency circulation in the Bitcoin economy has increased, and the network is relatively undervalued compared to its high interest rate.
The NVT ratio shows an undervalued and high speed network. (source)
It is clear how fast and proportional transactions are carried out on the network both inside and outside the exchanges. We must pay attention to the sum of unique active addresses, including both the sender and the receiver. The sum of active addresses has gradually increased since the lowest level in July 2021. This has been a good indication of the evolution of network activity since the inception of Bitcoin.
Total active addresses revealing the evolution of the Bitcoin network. (source)
Ultimately, long-term investors are concerned about the digital attributes of how quickly bitcoin is used in the economy rather than its trading price. With the limited supply and the increasing demand, the increase in active transactions and addresses over time shows the growth of the usefulness of the Bitcoin network.
The main feature of chain analysis is the HODLing behavior of long-term investors. One of the most reliable indicators is the UTXO value ranges that show the distribution of all UTXOs in terms of their size. All of the UTXOs considered here represent the total value of all UTXOs ranging from 10 to more than 10,000 bitcoins, which focus on whale behavior. As shown in the following figure, more UTXOs were retained in massive amounts indicating that whales do not distribute coins and instead accumulate.
Whales accumulate in line with the UTXO value ranges. (source)
In addition, UTXO age ranges display the number of UTXOs that were most recently transferred over a specified duration. All studied ranges (more than six months) were maintained and gradually expanded. This means that more investors were holding and collecting more coins.
The age of the coin is matured with reference to the UTXO age bands. (source)
The age ranges and value ranges of the UTXO account indicate that short-term liquidity is prevalent across the market, while long-term liquidity is still dormant and slightly increasing. Simply put, long-time HODLers are quietly confident regardless of short-term fluctuations in the price of bitcoin.
Overall, the Bitcoin network has grown in utility during the recent semi-bear market. The behavior of off-exchange transactions was implemented as a possible payment process, and the Bitcoin community adopted a HODLing stance.
This is a guest post by Dang Quan Vuong. The opinions expressed are their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.