Bitcoin Holder Metrics Indicate Potential Price Growth Amidst Declining Network Activity
Recent analysis from CryptoQuant reveals an intriguing contradiction in the Bitcoin (BTC) market: while overall blockchain activity has fallen to its lowest levels in a year, a specific metric related to bitcoin holders suggests potential price appreciation in the coming months. The firm’s Bitcoin Network Activity Index has decreased by 15% since its record high in November 2024, currently standing at 3,760 as of Friday morning—marking its lowest point since February 2024.
The Bitcoin Network Activity Index aggregates various metrics, including active addresses, transaction counts, block sizes, and transaction fees, to provide insights into the growth or decline of Bitcoin usage. This recent drop in activity is particularly highlighted by a significant reduction in the number of transactions occurring on the network. As of Friday, the total daily transactions have plummeted to 346,000, a staggering 53% decline from the peak of 734,000 transactions.
Further illustrating the lack of network activity, the Bitcoin mempool—where unconfirmed transactions await inclusion in a block by miners—has also seen a drastic decrease. Mempool volumes have dropped from a high of 287,000 in December to a mere 3,000 as of Thursday, a decline of almost 99%, reaching levels not observed since March 2022.
CryptoQuant attributes this downturn in network activity primarily to a sharp decrease in the utilization of the Runes Protocol, a novel method for issuing fungible tokens directly on the Bitcoin blockchain. The firm stated, “The decline in Bitcoin’s network activity can be mostly explained by the collapse in the use of the RUNES protocol to mint tokens on the Bitcoin network.” This is particularly evident in the daily usage of OP RETURN codes—an integral part of Bitcoin transactions that the RUNES protocol employs to log data about token mints and transfers.
When the Runes Protocol was introduced in April 2024, daily OP RETURN code usage surged to an impressive 802,000. However, usage has since plummeted, with only 10,000 OP RETURN codes being recorded recently. Despite the downturn in activity, the implications for bitcoin prices may not be as dire as one might expect. In fact, there has been a notable increase in demand from long-term holder addresses in recent weeks.
This surge in accumulation is historically associated with upward price movements in BTC, signaling a growing perception of Bitcoin as a valuable investment asset or a reliable store of value. Permanent holders—those addresses that consistently accumulate BTC over time without engaging in spending transactions—exhibit a long-term holding strategy that reduces sell-side pressure on the market.
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