In a day when Bitcoin prices are crashing, posting worrying drops from April 2023 peaks, the underlying network is processing record transactions.
Bitcoin Prices Dropping, But Why?
Dune Analytics data on May 1 shows that the platform is processing record transactions which, if going by historical performance, would typically point to demand. In a normal scenario, this demand could translate to buying pressure.
However, as seen in the chart below, the spike in the activity on the Bitcoin network is attributed to the non-fungible token (NFT) collection “Ordinals.” The demand for these assets has interfered with the normal on-chain dynamics.
We can see a shift in preference as it relates to inscription types.
Image Inscriptions dominated until very recently, but have been surpassed by text based .
— glassnode (@glassnode) April 30, 2023
In that sense, despite the high block demand, BTC prices are down 4% in the past 24 hours, crashing 10% from April 2023 peaks, and are likely to clear critical support levels immediately. Notably, sellers have quickly reversed the gains of April 27.
While Bitcoin prices remain under pressure when writing, the coin is within a broader trade range. Key reaction points remain at $31,000 on the upper hand, a level flashing with April 2023 peaks, and $26.5k on the lower end, a support level marking the 38.2% Fibonacci retracement level of the March to April trade range.
Moreover, from mid-March 2023, BTC rallied approximately 60%, floating higher as the financial markets feared another meltdown in the United States banking sector. Silicon Valley Bank (SVB) experienced a bank run in March while two more crypto-centric banks, including Signature Bank, closed shop.
High On Chain Activity, A New Normal For BTC?
Bitcoin prices are now cooling off, looking at the performance in the daily chart. This is despite positive news based on blockchain activity.
According to Dune Analytics, the Bitcoin network has processed more transactions than any other day since launching 14 years ago.
On May 1, on-chain data showed that the platform processed 568,300 transactions, 78,000 more than it processed at the peaks of the 2017 Bull Run.
Even though activity has exploded, an analysis of the chunk of transactions processed revealed that over 50%, or 307,000, were inscriptions from Bitcoin Ordinals.
Dune data shows that the number of inscriptions is up 16% from April 29 and maintains an upward trend pointing to increasing user demand. The Bitcoin Ordinals allow users to attach or “inscribe” files on the Bitcoin network, including apps, videos, audio, images, texts, and more.
These files are unique, “inscribed” at the Satoshi level, and permanently stored on Bitcoin blocks. The more files inscribed, the more transactions there are, explaining the “spike” in the number of on-chain transactions processed in recent days.
As of May 1, over 2.9 million files were attached to the Bitcoin network, with the number of average inscriptions rising from less than 10,000 in early February to over 300,000 in early May 2023.
As mentioned above, the rapid rise of “inscriptions” doesn’t necessarily translate to demand for BTC. The underlying network is a transactional layer, enabling the transfer of funds. It is not meant for storing files, a development that could dent the appeal of the most valuable blockchain and slow down BTC demand leading to a permanent spike in its transaction levels.