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Bitcoin struggles to break out as on-chain data shows declining network activity, mirroring the March 2024 consolidation phase.
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Daily active wallet addresses have dropped 2% since February 1, signaling reduced user demand and potential downward price pressure.
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UTXO count declines, indicating lower transaction activity and possible investor hesitation, though broader market indicators remain bullish.
This article explores the current trends in Bitcoin’s network activity and price movements, highlighting key insights regarding investor behavior and market stabilization.
Bitcoin Could Face Prolonged Sideways Movement as Network Activity Drops
According to a recent report by pseudonymous CryptoQuant analyst Avocado_onchain, Bitcoin network activity has been steadily declining, contributing to BTC’s recent narrow price movements. If this continues, “we must consider the possibility of another prolonged consolidation phase, similar to what began in March 2024,” the analyst says.
One such data Avocado considers is the number of daily active wallet addresses on the Bitcoin network. According to CryptoQuant’s data, when observed using a 30-day small moving average (SMA), the daily count of addresses that have completed at least one BTC transaction has plummeted by 2% since February 1.
A decline in active daily wallets on the Bitcoin network signals reduced user demand. This can contribute to downward price pressure on the coin, as decreased network activity typically aligns with lower buying interest.
In addition, Avocado reports that “the number of UTXOs is also decreasing, with the magnitude of the decline similar to the correction period in September 2023.”
Unspent Transaction Output (UTXO) tracks the amount of Bitcoin left after a transaction, which can be used as input for future transactions. It represents the available balance that can be spent on the network. When the number of UTXOs declines, fewer new coins are being distributed or moved, suggesting reduced transaction activity. This indicates a period of consolidation, where investors are holding rather than spending their coins.
“If this trend continues, we could see signs of investor exodus similar to the market cycle peak of 2017. However, a simple decline in UTXOs alone is not enough to confirm the end of the current cycle, as other indicators still suggest a bullish outlook,” Avocado writes.
Bitcoin Hovers Near Key Support—Will It Hold or Break Lower?
As of this writing, BTC trades near the support line of its horizontal channel at $95,527. If the Bitcoin network activity wanes, further affecting the demand for the king coin, its price could break below this level. In this scenario, BTC could drop to $92,325.
On the other hand, if market trends shift and the buying pressure gains momentum, the coin could rally toward the resistance at $99,031 and attempt a crossover. If successful, BTC could reach $102,665.
Conclusion
The current trend in Bitcoin’s network activity suggests a cautious outlook as declining wallet transactions may impact its price resilience. However, with broader market indicators hinting at an underlying bullish sentiment, stakeholders should monitor the evolving dynamics closely.
