Bitcoin Prices Drop, But Why?
On a day when Bitcoin prices are plunging and recording alarming drops from the highs of April 2023, the underlying network is processing record transactions. According to data from Dune Analytics on May 1, the platform processed record transactions that would typically indicate demand based on historical performance. In a typical scenario, this demand could lead to buying pressure. However, the rise in activity in the Bitcoin network is attributed to the non-fungible token (NFT) collection, "Ordinals.” The demand for these assets has affected the normal on-chain dynamics.
In this sense, despite the high block demand in the last 24 hours, BTC prices have dropped by 4%, plunged 10% from the highs of April 2023 and are likely to immediately surpass critical support levels. Furthermore, sellers have quickly wiped out gains from April 27.
While Bitcoin prices remain under pressure, the coin is trading within a wider range. The key reaction points remain at $31,000 on the upper side, a level that flashes with the highs of April 2023, and $26,500 on the lower end, a support level that marks the 38.2% Fibonacci retracement level of the trading range from March to April.
Moreover, BTC recovered about 60% from mid-March 2023 and rose higher as financial markets feared another meltdown in the banking sector in the United States. The Silicon Valley Bank (SVB) experienced a bank run in March, while two other crypto-centric banks, including the Signature Bank, closed their doors.
High On-Chain Activity, A New Normal For BTC?
Bitcoin prices are now cooling down as seen in the performance in the daily chart despite positive news due to blockchain activity. According to Dune Analytics, the Bitcoin network has processed more transactions than on any other day since its introduction 14 years ago.
On May 1, on-chain data showed that the platform processed 568,300 transactions, 78,000 more than at the peak of the 2017 bull run. Although activity has exploded, analysis of the bulk of processed transactions showed that over 50%, or 307,000 entries, were Bitcoin Ordinals.
Dune data shows that the number of registrations has increased by 16% since April 29 and maintains an upward trend suggesting rising user demand. Bitcoin Ordinals enable users to attach or "write in" files to the Bitcoin network, including apps, videos, audio, images, texts, and more.
These files are unique, inscribed at the Satoshi level, and permanently stored on Bitcoin blocks. The more files are inscribed, the more transactions are generated, explaining the "peak" in the number of on-chain transactions processed in the last few days.
As of May 1, there were over 2.9 million files attached to the Bitcoin network, with the average number of entries rising from less than 10,000 at the beginning of February to over 300,000 at the beginning of May 2023.
As mentioned above, the rapid rise in "inscriptions" does not necessarily translate into demand for BTC. The underlying network is a transaction layer that enables money transfer, i.e., not meant for storing files, a development that could affect the attractiveness of the most valuable blockchain and slow down BTC demand, leading to a sustained rise in transaction levels.
