5 Indicators of the Strong Fundamentals of the Bitcoin Network: On-Chain Analysis

The unclear trend of the BTC price, the months-long sentiment of fear and pessimism in the crypto market, the declining interest of the media and retail investors, and the predictions of a collapse of the Bitcoin price to the vicinity of $20,000. This all effectively concealing the underlying truth of the cryptocurrency market: Bitcoin’s fundamentals are as strong as ever.

In today’s on-chain analysis, BeInCrypto looks at 5 indicators that make a clear case for the above statement. All of them relate to the fundamentals of the Bitcoin blockchain and are currently – during a period of extreme fear and uncertainty – at their all-time highs (ATH).

The 5 indicators of the strong fundamentals of the Bitcoin network that will be discussed in this article are:

Hash rate Lightning network capacity Number of addresses with a non-zero balance Liquid supply Number of congestion addresses

Hash rate

Hash rate is the primary indicator of the performance and security of the Bitcoin network. It measures the average estimated number of hashes per second produced by miners in the network.

The 30-day moving average hash rate reached a historical ATH of 166 EH/s on April 15, 2021. At the same time, Bitcoin established its previous ATH of $64,850 (blue circles).

After that, the network’s hash rate dropped dramatically, mainly due to the exodus of miners from China related to the ban on cryptocurrency mining in Chinese provinces. At the July 2021 low, the hash rate of the Bitcoin network was just 95 EH/s, almost 43% lower than the April ATH (red circles).

However, since then, the hash rate has steadily increased, breaking new all-time records. The current value of the Bitcoin network’s 30-day moving average hash rate is 204 EH/s. So this is 23% higher than the previous ATH, despite BTC being priced around $41,500 today (green circles).

Lightning network capacity

The second metric that is a good measure of usage and activity on the Bitcoin network is Lightning Network Capacity. This metric indicates the total amount of BTC locked in the Lightning Network, which is layer 2 of the Bitcoin blockchain. Its main functions are to speed up BTC transactions and reduce transaction fees.

Lightning Network capacity experienced exponential growth, tripling between April and November 2021 (green area). Interestingly, this time frame includes both the summer correction in the BTC price with a bottom of $29,000 and the new ATH of $69,000 reached on November 10, 2021.

What is even more interesting is that despite the bearish sentiment in the BTC market, Lightning Network Capacity continues to rise and set another ATH. The current record is at 3589 BTC and was set on April 10, 2022 (blue circle).

Number of addresses with a non-zero balance

Another important indicator of the health of the Bitcoin network is the number of addresses with a non-zero balance. It measures the number of unique addresses that have a positive (non-zero) number of BTC coins and is updated daily.

A chart of the 30-day moving average of this benchmark appears to be resisting any downside. It has almost always risen monotonically since the inception of the Bitcoin network.

The only exception is the February-April 2018 period, the start of a bear market after the parabolic rises and Bitcoin’s historical ATH of $20,000 from 2017 (red area). A slight drop can also be seen during the May 2021 correction (blue area). However, on average, the number of addresses with a non-zero balance remained constant.

Currently, the indicator sets a new ATH every day. On April 19, 2022, the number of addresses with a non-zero balance was 41,243,796 (green circle). This is another argument for the dynamic growth and strong foundations of the Bitcoin network.

Chart by Glassnode

Illiquid Provision

A very interesting on-chain indicator is the Illiquid Supply of the Bitcoin network. It measures the total supply held by illiquid entities. The liquidity or illiquidity of an entity is defined as the ratio of cumulative outflows and cumulative inflows over the lifetime of the entity. The lower this ratio, the more illiquid the entity. In other words, such an address or UXTO is definitely willing to hold its BTC longer than sell it.

The long-term, 5-year chart of the illiquid supply ratio is also dominated by an upward trend with minor corrections. The only two major corrections occurred after the aforementioned late 2017 peak and at the April 2021 ATH (blue areas).

Interestingly, illiquid supply continues to grow during Bitcoin’s current price correction, and this growth has only accelerated in the past two months. Currently, almost 14.5 million BTC are already considered illiquid (green circle).

Number of accumulation addresses

We conclude our analysis of 5 indicators of strong Bitcoin network fundamentals with the measure of Number of Congestion Addresses. This indicator measures accumulation addresses, which are defined as addresses that have at least 2 incoming non-substance transfers and have never spent funds. In addition, the indicator discards swap and mining addresses, and omits addresses that were last active more than 7 years ago. So it captures the number of long-term hodlers quite well.

On the graph of the number of accumulation addresses going back to May 2021, we also see a fairly monotonic upward trend. However, since mid-February 2022 – despite the drop in the price of BTC (arrow) – the growth in the number of accumulation addresses has accelerated rapidly and the growth curve has become sharper (black line).

Currently, the indicator is setting a new all-time record near 610,000 addresses that hold BTC and have never spent it. This is another signal of continued BTC accumulation and further evidence of the increasingly strong fundamentals of the Bitcoin network.

Click here for BeInCrypto’s latest Bitcoin (BTC) analysis.