bitcoin price remains firm around the critical $34,000 zone, suggesting further upside potential. However, market analysts are wondering if there are enough clues pointing to the upside or if btc will return to $20,000.
At the time of writing, btc is trading at $34,150 with sideways movement in the last 24 hours. The cryptocurrency posted a 15% gain in the previous week and remains one of the best-performing coins by market capitalization.
bitcoin On-Chain Activity Increases, Suggesting a Bull Run?
Data from analytics platform mempool.space shows an increase in on-chain activity on the bitcoin network. This peak occurred in February 2023, when btc transactions exceeded 50 virtual megabytes (MvB).
According to the analytics platform, the above metric measures the size of transactions and blocks on the btc network. The larger the transaction, the more space they needed.
As seen in the chart below, every time there is an increase in the price of btc, there is an increase in activity leading to the rally. This happened in 2017 and 2021, and is happening this year, suggesting that the ecosystem is flourishing, adding more users and preparing for a more significant rebound like the previous year.
In addition to the increase in activity, it is possible to see the decrease in the metric during the bear market and conclude that bull markets see record activity. In contrast, the bear market sees much less user activity and is generally cheaper to transact.
However, unlike 2017 and 2021, this year this ecosystem saw the implementation of non-fungible tokens (NFTs) and new applications that boosted these metrics. Therefore, it is more difficult to determine whether the current rally can reach similar levels to previous years, as the btc DeFi ecosystem attracts more users looking to leverage the network for profits rather than long-term investments.
Does btc DeFi make a difference in key btc metrics? A chat with the team behind “Leather”
The increase in btc on-chain activity could be attributed to the cyclical nature of the crypto market. When the price of btc and others increase, or there is an expectation of more profits, more users join the network.
As a result, the number of recorded transactions increases. However, many believe that with the implementation of NFTs in the btc ecosystem, transaction activity can no longer be attributed to a new bull cycle.
If so, rising activity metrics could become useless in gauging the sustainability of a btc rally. To answer this question, we spoke with Mark Hendrickson, CEO of Trust Machines, a company working on a bitcoin DeFi wallet. This is what he told us:
What is “leather” and what is its purpose in the bitcoin ecosystem?
A: Leather is a web3 wallet built around bitcoin-based technologies and applications. And so you can think of Leather, simply put as MetaMask for bitcoin in the sense that we want to provide a robust user experience for connecting to applications built with bitcoin and bitcoin layers where users can do many of the same things that Al At the same time, they can only do it on smart contract-enabled L1 chains, but they can actually do it on bitcoin.
Leather therefore has the ability to connect applications, identify itself to those applications based on their bitcoin addresses and their associated assets; those applications request signed transactions which are essentially actions for those applications and do it across layers. (…) We also want to facilitate the movement of liquidity between L1 and L2 (networks) and do it in a very fluid way.
Many people, for many reasons, are not familiar with the bitcoin DeFi ecosystem. Can you tell us more about this and what the role of leather is in it? Also, what would you say to users who want bitcoin to remain unchanged, as it has been since its creation in 2009?
A: I would say that bitcoin-based DeFi is generally taking place these days or emerging in two places. It has primitives for bitcoin-based splitting into bitcoin itself. That’s an L1 (Layer One), primarily powered by Ordinals and within Ordinals fungible token standards like BRC 20. And then it’s also related to bitcoin on Layer2 like Stacks that have smart contract functionality. (…) most of that happens through ordinals in the layers. This is primarily done through the native smart contracting capabilities of those layers.
To the question of people who want bitcoin to remain unchanged, I think people who are working on bitcoin-related functionality, I would say bitcoin web3 in general, which includes DeFi. In fact, we are trying to do more with bitcoin without having to exchange bitcoin at all. So really our general approach is to try to expand what can be done with bitcoin without having to fundamentally change it because of course we want to respect all the work that has been done on bitcoin to date and we would love the security profile of bitcoin. And that has to do with taking a relatively conservative approach. So if you look at ordinals, for example, which is actually a taproot-based innovation introduced quite recently, there’s a lot of innovation happening as a result of taproot ordinals without really changing anything else about bitcoin. It’s a design space that is actually quite respectful of bitcoin as a blockchain.
There is a theory that each bull run is preceded by an increase in on-chain activity, and fees follow prices on their way to new highs. What do you think of the network activity at the moment? Do you think much of this can now be attributed to ordinals and other applications?
A: Going back to the beginning of the year, Ordinals has been a big exception to the general cryptocurrency bear market rule because we have essentially experienced two bull runs within Ordinals itself, which I think has boosted bitcoin‘s position and definitely has . boosted network activity in bitcoin and fees have increased as a result. And it really showed that this idea of storing data on chain in bitcoin beyond simple transactions and applying those primitives to various web3 applications, whether it’s art or new token standards, can have a huge effect on how bitcoin is used and valued as well. (…) It’s hard for me to really identify a given reason why in a given month the price of bitcoin may have gone up due to other factors, but it’s pretty clear that it has an overall effect (on network activity) . Ordinals have had a positive influence on interest in bitcoin.
ETF, Store of Value, Gold 2.0, Halving and now bitcoin DeFi, what is the current narrative dominating the btc market? And which narrative will gain more prominence in the long term?
A: I think the dominant narrative around bitcoin is probably that after the last crash, it’s actually a consequence of last year. I think there are a lot of weaker technologies, weaker platforms and assets that were shaken up and people ran away from them and took a safer harbor and bitcoin came back to bitcoin as really the one that has stood the test of time. That, combined with the fact that people, since the beginning of the year with the Ordinals in particular, have been open to the fact that there are more frontiers to what can be done with bitcoin. I think that combination has really driven some sort of renewed enthusiasm around bitcoin. It’s a combination of: it’s been around the longest, it’s the safest, and it’s also not a dinosaur that can’t evolve yet. It actually has a lot of potential. Actually, it has both qualities that are very attractive, confident and conservative on the one hand, but it is also more innovative and has more potential than people had realized before on the other hand.
Cover image from Unsplash, chart from Tradingview
