5 Indicators of Strong Bitcoin Network Fundamentals: On-Chain Analysis
The unclear BTC price trend, months-long sentiment of fear and pessimism in the crypto market, waning media and retail investor interest, and predictions of a Bitcoin price around $20,000. All of this effectively obscures the underlying truth of the cryptocurrency market: Bitcoin’s fundamentals are stronger than ever.
In today’s on-chain analysis, BeInCrypto looks at 5 indicators that transparently back up the statement above. All are tied to Bitcoin blockchain fundamentals and currently – during a time of extreme fear and uncertainty – are at their all-time highs (ATH).
The 5 indicators of strong Bitcoin network fundamentals that will be discussed in this article are:
- Hash rate
- Lightning Network Capacity
- Number of addresses with a non-zero balance
- Illiquid supply
- Number of accumulation addresses
The hash rate is the primary indicator of Bitcoin network performance and security. It measures the estimated average number of hashes per second produced by miners on the network.
The 30-day moving average hash rate hit a historic ATH of 166 EH/s on April 15, 2021. At the same time, Bitcoin was fixing its previous ATH of $64,850 (blue circles).
After that, the network’s hash rate dropped dramatically, mainly due to the exodus of miners from China linked to the ban on mining cryptocurrencies in Chinese provinces. At the July 2021 low, the Bitcoin network hash rate was just 95 EH/s, down nearly 43% from the April ATH (red circles).
Since then, however, the hash rate has steadily increased and set new all-time highs. The current value of the Bitcoin network’s 30-day moving average hash rate is 204 EH/s. Thus, it is 23% higher than the previous ATH, although the price of BTC is around $41,500 today (green circles).
Lightning Network Capacity
The second metric that is a good measure of usage and activity on the Bitcoin network is the capacity of the Lightning Network. This metric shows the total amount of BTC locked in the Lightning Network, which is layer 2 of the Bitcoin blockchain. Its main functions are to speed up BTC transactions and reduce transaction fees.
The capacity of the Lightning Network has grown exponentially and tripled between April and November 2021 (green area). Interestingly, this period includes both the summer correction of the BTC price with a floor at $29,000 and the new ATH of $69,000 reached on November 10, 2021.
What is even more interesting is that despite the bearish sentiment in the BTC market, Lightning Network Capacity continues to rise and set another ATH. The current record is at 3589 BTC and was set on April 10, 2022 (blue circle).
Number of addresses with a non-zero balance
Another important indicator of Bitcoin network health is the number of addresses with a non-zero balance. It measures the number of unique addresses that have a positive (non-zero) number of BTC coins and is updated daily.
A chart of the 30-day moving average of this metric seems to resist any downturn. It has almost always grown monotonously since the inception of the Bitcoin network.
The only exception is the February-April 2018 period, the beginning of a bear market after the parabolic rises and Bitcoin’s historical ATH of $20,000 from 2017 (red zone). A slight decline can also be seen during the May 2021 correction (blue area). However, on average, the number of addresses with a non-zero balance remained constant at that time.
Currently, the indicator sets a new ATH every day. As of April 19, 2022, the number of addresses with a nonzero balance was 41,243,796 (green circle). This is yet another argument for the dynamic growth and solid foundations of the Bitcoin network.
Chart by Glassnode
A very interesting on-chain indicator is the illiquid supply of the Bitcoin network. It measures the total supply held by illiquid entities. Liquidity or illiquidity of an entity is defined as the ratio of cumulative outflows and inflows over the lifetime of the entity. The lower this ratio, the more illiquid the entity. In other words, such an address or UXTO is definitely willing to hold their BTC longer than sell it.
The long-term 5-year chart of the illiquid supply ratio is also dominated by an uptrend with minor corrections. The only two major corrections occurred after the aforementioned late 2017 peak and at the April 2021 ATH (blue areas).
Interestingly, illiquid supply continues to grow during Bitcoin’s current price correction, and this growth has only accelerated in the past two months. Currently, nearly 14.5 million BTC are already considered illiquid (green circle).
Number of accumulation addresses
We conclude our analysis of 5 indicators of strong Bitcoin network fundamentals with the number of accumulation addresses metric. This metric measures accumulation addresses, which are defined as addresses that have at least 2 dust-free incoming transfers and have never spent funds. Additionally, the indicator ignores exchange and mining addresses, and omits addresses that were last active more than 7 years ago. Thus, it captures the number of long-term hodlers quite well.
On the graph of the number of cumulative addresses going back to May 2021, we also observe a rather monotonous upward trend. However, since mid-February 2022 – despite the decline in the price of BTC (arrow) – the growth in the number of accumulation addresses has accelerated rapidly and the growth curve has steepened (black line).
Currently, the indicator is recording a new all-time high near 610,000 addresses that hold BTC and have never spent it. This is another sign of BTC’s continued accumulation and further evidence of the increasingly strong fundamentals of the Bitcoin network.
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