Bitcoin Mempool Shows Low Demand?, Why Bears Could Stage A Comeback
August 30 2021 - 6:00PM
NEWSBTC
There is a before and after in one particular Bitcoin indicator
that could be signaling bearish price action in the short term. As
stated by many experts, the current bullish momentum can only be
supported by strong demand, otherwise, BTC’s price could move
sideways or risk returning to its former range below $40,000. If
anything has me concerned it's this. Where is the demand?
pic.twitter.com/id2a7l6tEf — Will Clemente (@WClementeIII) August
29, 2021 The amount of on-chain activity is a useful indicator to
measure say demand. As the first cryptocurrency by market cap
climbed to its all-time high, above $60,000, the network saw a rise
in its number of transactions. This was probably triggered by a
FOMO effect from retail investors jumping into the crypto space for
fear of missing out on future gains. This phenomenon was driven by
Elon Musk promoting Dogecoin, the boom in the non-fungible token
(NFT) sector, and the yield offered by some DeFi protocols
competing with Ethereum. Bitcoin benefited from this new wave of
investors adopting cryptocurrencies, and digital assets. Thus, a
combination of institutional and retail interest and capital
allowed BTC’s price to reach a new ATH. Transactions fees at that
moment skyrocketed. This happened right until the moment when BTC
collapsed in the first of 3 capitulation events spread out across
May, June, and July. On-chain activity dropped with the market and
has been unable to recover since. As seen below, data from explorer
Mempool.space shows that fees have gone from 100 sats/vB to around
7 sat/vB for a high-priority transaction. Via Twitter, analyst Mr.
Whale said the following on the decline in Bitcoin’s on-chain
activity: Data shows there is virtually no demand for Bitcoin right
now. The BTC mempool has been flatlining for weeks, which is even
worrying some bulls. We’re in for another big crash, yet most are
too greedy to admit that. Bitcoin On-Chain Activity At A Low,
Whales Take Over The Market? On the other hand, pseudonym analyst
“ChimpZoo” sees the other side of the coin. The analyst believes
the lack of on-chain activity could be bullish for BTC’s price
based on 2 reasons. First, this indicates a decline in retail
participation or that a low amount of BTC’s supply is being held by
“weak hands”. The large inflow of retail investors experience in
the first months of 2021, some analysts believe, led to
speculation, high funding rates, and a high level of over-leverage
trading positions. All those factors accelerated Bitcoin’s dropped
from its ATH and operated as bearish catalyzers. Recent price
action to the upside lacks those variables, which could suggest
that this rally could be more sustainable. In addition, ChimpZoo
claimed that the lack of on-chain activity and the rally point to
an increase in whale activity, and in strong hands coming into the
market. This is supported by Jarvis Labs’ Accumulation Trends
metric. As seen in the chart below, in the past 30 days Bitcoin
whales have been accumulating more BTC than smaller investors. The
more yellow and closer to 1 on this metric, the more whales have
been accumulating. Thus, this could explain the low on-chain
activity. Analyst Checkmate acknowledged that the market is at an
uncertain point, but tends to incline more to the bullish side: The
divergence between onchain activity and supply dynamics atm is
simply insane. Activity looks like a bear. Supply looks like a
juiced bull. Truly a challenging structure to assess direction in,
but in my view, supply dynamics trump activity. Shows conviction
and strength.
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