Bitcoin, the world’s most valuable blockchain, is undergoing fluctuations in its prices, with the coin experiencing a worrying drop from the peak it attained in April 2023. However, despite the downturn in its value, the Bitcoin network is processing record transactions, indicating high demand. On May 1, Dune Analytics data showed that the platform processed 568,300 transactions, which is 78,000 more than it had processed during the peaks of the 2017 Bull Run. Historically, such activity would point to demand, which translates to buying pressure. However, the high block demand is attributed to the non-fungible token (NFT) collection “Ordinals”. Thus, the demand for these assets has interfered with the normal on-chain dynamics, which has contributed to the dip in BTC prices.
The spike in activity on the Bitcoin network due to “Ordinals” is an indication that the blockchain may be experiencing a new development that could impact its appeal, leading to a decrease in demand. The Bitcoin Ordinals allow users to attach or “inscribe” files on the Bitcoin network, such as apps, videos, audio, images, texts, or more. These files are unique and “inscribed” at the Satoshi level, meaning that they are permanently stored on Bitcoin blocks. As more files are inscribed, there are more on-chain transactions, which explains the recent spike in the number of transactions. As of May 1, over 2.9 million files were attached to the Bitcoin network, with the number of average inscriptions rising from less than 10,000 in early February to over 300,000 in early May 2023.
While the rapid rise of “inscriptions” on the blockchain does not necessarily translate to demand for BTC, it is worth noting that the underlying network is a transactional layer that enables the transfer of funds. It is not meant for storing files, and if this development continues to grow, it could slow down BTC demand, leading to a permanent spike in its transaction levels.
Despite the high on-chain activity and the increase in Bitcoin’s use cases, prices remain under pressure. Currently, the coin is within a broader trade range, with key reaction points at $31,000 on the upper hand and $26.5k on the lower end. Notably, sellers have quickly reversed the gains recorded on April 27, causing the value of the coin to dip by 4% in the past 24 hours and 10% from April 2023 peaks.
The fluctuation in Bitcoin prices can be attributed to several factors. Firstly, from mid-March 2023, BTC rallied approximately 60%, floating higher due to fears of another meltdown in the United States banking sector. During that time, Silicon Valley Bank (SVB) experienced a bank run in March, while two more crypto-centric banks, including Signature Bank, closed shop. Secondly, the recent high on-chain activity may also be due to Bitcoin’s use as a store of value. As the world continues to grapple with the pandemic, many investors are diversifying their investments, including buying Bitcoin as a hedge against possible inflation.
In conclusion, while Bitcoin is experiencing fluctuations in its price due to the recent spike in on-chain activity caused by “Ordinals”, the network’s underlying technology remains robust and continues to provide numerous use cases, including as a store of value. Despite the dip in its value, Bitcoin remains an attractive investment option, especially for investors seeking to diversify their portfolio. However, it is worth noting that the blockchain may be experiencing new developments that could impact its appeal and demand if not handled adequately. As with any investment, investors must carry out their due diligence before investing in cryptocurrencies.
