The Intriguing State of Bitcoin Network Activity
The most recent Bitcoin network activity data presents a puzzling scenario where initial indicators point towards a decline, potentially misinterpreting the actual value of the cryptocurrency.
Research Insights
A recent study by CryptoQuant conducted this month revealed that the Bitcoin Network Activity Index fell to 3,760 points in early February, marking its lowest point since February 2024. This 15% quarterly drop is closely linked to the decrease in RUNES protocol usage, which previously dominated 70% – 80% of OP_RETURN transactions by the end of 2024.
Key Metrics Comparison
| Metric | Reported Value | Organic Component | Protocol Component |
|---|---|---|---|
| Daily Transactions | 343,906 | 294,712 (85.7%) | 49,194 (14.3%) |
| Active Addresses | 675,585 | 598,234 (88.5%) | 77,351 (11.5%) |
| Mempool Depth | 3,000 | 2,610 (87%) | 390 (13%) |
Impact of RUNES Protocol Decline
The use of RUNES protocol in daily transactions has dramatically decreased from 802,000 during its peak to just 10,000 currently, leading to an artificial suppression of network metrics. This decline has significantly reduced the mempool backlog from 287,000 pending transactions in December 2024 to 3,000.
Valuation Paradox
The decrease in daily active addresses, down 12% year-over-year to 728,130, is primarily linked to the decline in RUNES-related addresses not engaging in BTC transfers. This discrepancy creates a valuation paradox where Bitcoin’s value of $99,000 seems inflated compared to Metcalfe bands ($48k-$95k), while adjusted organic activity metrics indicate a fair value range between $86k and $112k.
Adjusting Valuation Models
By focusing on organic metrics, the adjusted valuation model suggests that Bitcoin’s true network value surpasses what surface-level indicators suggest. This method aims to correct the artificial suppression of activity metrics due to the decline in non-Bitcoin protocol usage.
Current Network Dynamics
As of February 2025, Bitcoin is operating as a pseudo-two-layer network, with stable organic BTC transfers and a significant decrease in protocol-driven transactions. This split creates conflicting signals, potentially causing mispricing in traditional valuation models.
Investment Opportunity
The current scenario presents a unique chance due to the intersection of temporal metric decay, institutional accumulation, and derivatives divergence. Despite retail metric declines, Coinbase institutional inflows reach $4.5 billion daily, with a majority of transfers directed towards cold storage.
Historical Divergence
This period could signify a historic gap between reported on-chain metrics and Bitcoin’s fundamental network health, creating favorable accumulation conditions for savvy investors.
The post The illusion of Bitcoin’s decline arises as protocol-driven transaction collapse distorts on-chain valuation signals appeared first on CryptoSlate.
