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This week we will explore New Entities, Network Growth, Transfer Volume

We have explored New Entities data in prior issues, mainly related to user adoption growth, which is a way to measure user adoption. As new entities complete transactions on the Bitcoin network, we can track Bitcoin addresses to determine who is using the network and in what quantity. So, when new entities increase, volume usually follows. In the chart below, you can see that around 80K+ new entities join the network each day, which is also a new low for this cycle, yet it is still higher than the 2018 bear market, so it is a higher low than the 65K+ new entities per day set in 2018.

Glassnode also noted that in the current cycle, network growth first entered a contracting mode over 500 days ago, with a short period between March and April 2022 when contraction waned. They noted periods of adoption recovery, being most significant around the mid-2019 rally that pushed Bitcoin to $14,000.

You can see in the chart below, which basically compares the level of average monthly adoption, to the average yearly adoption, that you can see momentum shifts in network adoption much like you can use RSI to determine tops and bottoms by using divergence. More recently, network adoption has recently collapsed as we entered the Crypto Winter, which started as inflation started to tick up and has now fallen below the floor established by what is called the Great Miner Migration that occurred in May-2021 and is putting in a lower low.

The next data point Glassnode noted is that the median transaction volume is in a structural decline and appears to be in the process of gradually flattening out. Such a decline seemed to suggest the market has entered a period of stability, indicating reduced speculative participants and that the market may be approaching a floor.

If we explore the expansion of retail participants and compare them to declines in retail participants, It compares the current momentum to the longer trend. Glassnode noted the Great Miner Migration, which was a period of retail expansion noted in purple in the chart below, which has lasted over 426 days. Ironically, this is similar in time to the retail investor purge observed during the 2018 bear market, which lasted 474 days before the averages recovered.

As we jumped into this week’s Glassnode report, we found that New Entities, Network Growth, and the distribution transfer volume implied that Bitcoin is already stagnating much like economies do with stagflation. As a result, it is not likely that we will see new all-time highs until a few metrics return to reasonable growth levels. You can assume the network needs to be growing and not declining. Even though adoption is growing, new entities need to either equalize or exceed prior highs, while transfer volume of retail participants needs to at least recapture trend resistance.

Our conclusion!

There is a difference between access and actual usage adoption. As long as there is a decline in new user adoption, it’s fair to assume no major recovery is underway and that any rallies we have had are dead cat bounces. Granted, we have some major players adding Bitcoin at points of access, but until that actual adoption manifests, we may struggle with adoption user growth.

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