One of the key aspects of on-chain analysis is examining transactions on the network. Unlike exchange-related transactions, which often lead to price volatility, non-exchange transactions represent network utility as possible payments between users. The interaction of users with each other contributes positively to the development of the network in the long run. Therefore, it is essential to study transaction behavior over the network.
Regarding the sum of all intra-exchange transactions, the number of transactions circulating in exchanges’ wallets is trending lower than the May 2021 peak. This means that there is not much transfer activity in the market. It looks different from previous price cycles where this number was strongly correlated with price action.
Meanwhile, the total number of deposits and withdrawals to and from exchanges has dropped downward, showing that people may be less engaged with exchanges.
Additionally, the number of transactions from all exchanges to derivatives exchanges has dropped, an indication that derivatives trading is not very attractive at the moment.
Meanwhile, cumulative selling pressure is unlikely due to the significant drop in the number of transactions from all exchanges to spot exchanges. This offers the slightest incentive and lessens the bearish sentiment among stakeholders.
At the same time, the total number of transactions increased in contrast to the downtrend in exchange-related transactions. It means an increased supply/demand outside of the exchanges, resulting in high utilization of the Bitcoin network.
Network value-to-transaction (NVT) is the ratio of market value divided by trading volume. This helps quantify the relativity between network value and network usage, as throughput represents network usage. A falling NVT proves that the speed of coins circulating in the bitcoin economy is increasing, and the network value is relatively undervalued compared to its high utility.
It is clear how quickly and proportionally the transactions are carried out on the network inside and outside the exchanges. We must pay attention to the aggregate of unique active addresses, including both senders and recipients. The total of active addresses has gradually increased since the bottom of July 2021. This has been a good indicator for the evolution of network activity since the inception of Bitcoin.
As a result, long-term investors are more interested in the digital characteristics of the speed of bitcoin usage in the economy rather than the trading price. The increase in transactions and active addresses over time, along with limited supply and increasing demand, indicates the growth of the use of the Bitcoin network.
The key feature of on-chain analysis is the HODLing behavior of long-term investors. One of the most reliable indicators is the UTXO value bands, which show the distribution of all UTXOs by size. All UTXO bands reviewed here represent the total value of all UTXOs ranging from 10 to 10,000 bitcoins focused on the behavior of whales. As can be seen in the figure below, enormous amounts of more UTXO were retained, suggesting that the whales were not distributing coins and instead hoarding them.
Additionally, UTXO age bands display the number of UTXOs that last moved in a given time period. All considered bands (more than six months) were maintained and gradually expanded. This indicates that more investors are holding and accumulating more coins.
UTXO’s age groups and value bands show that short-term liquidity dominates the market, while long-term liquidity is still almost dormant and slightly increased. Simply put, long-standing HODLers are calmly confident regardless of short-term volatility in bitcoin price.
On balance, the utility of the Bitcoin network is growing during the last half-bear market. Transaction behavior outside of exchanges has been implemented as a viable payment process, and the Bitcoin community has embraced the HODLing stance.
This is Dang Quan Vuong’s guest post. The opinions expressed are their own and may not necessarily reflect the views of BTC Inc. or Bitcoin Magazine.