After reaching a peak about a month ago, Bitcoin [BTC] has been facing challenges in sustaining its upward trajectory. Over the last fortnight, BTC has been trading below the $100,000 mark.
The issues confronting Bitcoin extend beyond its price performance to the activity of its users. Notably, renowned cryptocurrency analyst Axel Adler has pointed out a significant decrease in Bitcoin’s active addresses.
Adler highlights that following the peak of BTC prices at $107,000 a week ago, the number of active addresses on the network has seen a noticeable decline, dropping below the yearly average to a low of 1.1 million.
The dwindling active addresses raise concerns for BTC, indicating reduced network engagement and a decrease in active investor participation.
Observing this decline in network engagement, CryptoCrypto also notes a spike in Bitcoin’s NVT Ratio from 89 to a historically high level of 978.
Extreme NVT Ratio levels indicate a speculative price surge for BTC that may not be sustainable, with past trends showing that such peaks are often followed by price corrections.
Likewise, the decrease in network activity reflects diminished demand among investors, with daily transaction volumes dropping from 402,000 to 350,000 over the past three weeks.
A drop in transaction volumes confirms the earlier observation of reduced user interaction with the network.
Traditionally, rising active addresses align with bull markets, whereas a decline typically precedes market corrections, particularly when accompanied by low daily transaction volumes and a rising NVT Ratio.
Potential Impact on BTC
The reduction in active addresses has coincided with increased volatility in the Bitcoin market. Consequently, Bitcoin is finding it challenging to uphold an upward trend, resulting in consolidation as active users decrease.
These market conditions suggest that the lower number of active addresses is impacting Bitcoin’s demand side, which is crucial for sustained upward momentum.
If the low demand persists over an extended period, institutions may opt to sell to cover operational expenses, exerting further downward pressure on the price.
In line with the current trend, Bitcoin’s price could potentially drop to $94,992. Conversely, a recovery in Bitcoin’s demand side might see the price making an attempt at $98,830.