Glassnode: Declining Bitcoin Network Activity Suggests Longer Bear Market

As several of Bitcoin’s on-chain metrics remain in bear market territory, a continuation of the recent price recovery will require an increase in demand and network fees, Glassnode said.

The lackluster market growth over the past week was assessed by blockchain analytics firm Glassnode in its latest blockchain weekly report on Aug. 1.

Analysts point to a sideways increase in transaction demand, active bitcoin remaining in a "clear downtrend," and a reduction in network fees as dampening investor euphoria over the 15 percent surge in bitcoin's price over the past week.

The report begins by highlighting the characteristics of a bear market, including a reduction in on-chain activity and a shift from speculative investors to long-term holders (LTH). The Bitcoin network is still displaying these characteristics, the report said.

Glassnode wrote that the decline in network activity can be explained by the lack of new demand for the Bitcoin network from speculative traders relative to long-term holders and investors with a high degree of confidence in the network technology. The report states:

“Aside from several spikes in activity during major capitulation events, current network activity suggests that there is still little new inflow of demand.”

The additional demand needed to sustain any further price gains could not be observed in contrast to last week, where a significant level of demand appeared to be established at the $20,000 level for BTC and created a bottom. Glassnode refers to the steady decline in the number of active addresses as a "bear market low demand condition," which has essentially been in place since December.

The analysis found similarities between current network demand patterns and those established during the 2018-2019 period. Similar to the previous cycle, network demand dried up after Bitcoin's price hit an all-time high in April 2021. As prices recover to new all-time highs in November 2021, demand picks up significantly ahead of that.

However, demand has been on a downward trend since November last year, with a sharp drop during the massive sell-off in May.

“The Bitcoin network is still dominated by long-term holders, and so far there has not been any noteworthy return of new demand.”

Low demand from people other than Bitcoin enthusiasts has forced network fees into “bear market territory,” Glassnode added. This past week, the daily fee was only 13.4 BTC. In contrast, when prices hit an all-time high last April, daily network fees topped 200 BTC.

Assuming fee rates rise to any notable extent, it could mean that demand is on the rise, helping to sustain a further "constructive structural shift" in activity on the bitcoin network, Glassnode said.

"While we haven't seen a significant rise in fees yet, keeping an eye on this metric could be a sign of recovery."