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Bitcoin Market Intelligence - Issue #3

Jan Wüstenfeld
Jan Wüstenfeld
Hey everyone,
Welcome to the third issue of the Bitcoin Market Intelligence Newsletter. In this issue, I will take a deep dive into metrics that can be used to gauge interest and activity around Bitcoin.
Summary:
Mempool empty
Real Trading Volume low
Google Trends searches for bitcoin trending lower
Bitcoin and Ethereum Tweet volume falling
New weekly Twitter followers of data providers and services falling
Wednesday interest rate decision by FED: expected hike of 50 basis points
My interview for BlingBling (in German)
In the previous issue, I have already written about three indicators that measure network activity. Namely, the total bitcoin value transferred on-chain and the number of addresses sending bitcoin to and receiving bitcoin from exchanges.
All three indicators continue to be at low levels. In fact, the 7-day moving average of the number of addresses receiving bitcoin from exchanges has even dropped further since Issue #3 and is now below the last bear-market levels.
Graph 1: Bitcoin Total Value Transacted On-Chain 1 Week Cumulative, Rolling (Source: ByteTree)
Graph 1: Bitcoin Total Value Transacted On-Chain 1 Week Cumulative, Rolling (Source: ByteTree)
Graph 2: No. of Addresses Sending Bitcoin to Exchanges 7-Day MA (Source: CryptoQuant)
Graph 2: No. of Addresses Sending Bitcoin to Exchanges 7-Day MA (Source: CryptoQuant)
Graph 3: No. of Addresses Receiving Bitcoin from Exchanges 7-Day MA (Source: CryptoQuant)
Graph 3: No. of Addresses Receiving Bitcoin from Exchanges 7-Day MA (Source: CryptoQuant)
But these three measures are not the only metrics that can be used to gauge activity around the Bitcoin network and bitcoin in general. 
Mempool
One other great data source is the Mempool. In the Mempool all transactions are stored that are sent on the Bitcoin network but have not been added to the bitcoin blockchain in a block yet. A large Mempool indicates high on-chain activity with potentially longer waiting times for a transaction to be confirmed in a block.
Graph 4: Mempool Last Three Years (Source: mempool.space)
Graph 4: Mempool Last Three Years (Source: mempool.space)
Currently, the Mempool is relatively empty, indicating rather low on-chain activity. Apart from some smaller spikes, since July 2021, it has been more or less empty. It peaked shortly after the all-time high in April 2021. 
Some argue that this is due to an increase in the Lightning Network adoption or, for example, exchanges sending bitcoin more efficiently via e.g. batching of transactions.
Graph 4: Bitcoin Lightning Network Capacity (Source: Glassnode)
Graph 4: Bitcoin Lightning Network Capacity (Source: Glassnode)
Yes, the public bitcoin capacity of the Lightning Network increased significantly last year and is currently at an all-time high of 3.7k bitcoin, and it might have played a role in the decline in on-chain activity. However, in my opinion, the adoption of the Lightning network is not that significant yet, that it is the major influencing factor. Similarly, for transaction batching.
It does not appear to be a coincidence that the Mempool size started to decrease after the price of bitcoin peaked for the first time in April. More likely, with bitcoin’s price losing steam, retail has taken a step back from bitcoin.
Due to the various factors potentially influencing one indicator, it is crucial to consider multiple indicators to understand better what is going on and rule out that the aforementioned factors played a major role. These are amongst others the trading volume on exchanges, social media activity, and Google searches.
Real Trading Volume
The most obvious market-based indicator is the trading volume on exchanges. For that, I am using the real trading volume data by Messari.io. In 2022, trading volumes have been relatively low compared to 2021 and has even been decreasing further more recently.
Note: Most crypto exchanges are not regulated. Some of the exchanges are participating in wash trading to inflate their trading volumes artificially in order to e.g., rank higher on lists of data providers. The advantage of the real trading volume data by Messari.io is that only exchanges that Messari has identified not to conduct wash trading are included. So their data should represent a more accurate picture of what is happening on exchanges compared to trade volume data from, for example, Coinmarketcap.
Graph 5: Bitcoin Real Trading Volume since 2020 (Messari.io)
Graph 5: Bitcoin Real Trading Volume since 2020 (Messari.io)
Google Trends Data
A prominent indicator to gauge interest in Bitcoin is undoubtedly the number of searches for Bitcoin on Google. Google Trends provides an index ranging from 0 to 100. For the selected time span it attributes the value 100 to the week/day where the most searches for Bitcoin have happened and all other data points are measured relative to that.
I have selected the last 5 years for that as before that not too many searches for Bitcoin have taken place. Unsurprisingly, searches for Bitcoin peaked during the last bull-run in 2017, driven by a retail frenzy and ICO hype.
Gaph 6: Bitcoin Searches Last 5 Years (Source: Google Trends)
Gaph 6: Bitcoin Searches Last 5 Years (Source: Google Trends)
While it does not come close to 2017, throughout the first half of 2021, after the bear-market search activity has been picking up. I am not surprised that it didn’t pick up by that much, as we, in my opinion, did not come anywhere close to the retail hype like in 2017. 
Some might argue that people did not have to search for Bitcoin anymore in 2021 and today because they already know about it. However, considering that even today many people don’t really know what bitcoin is and do not understand it, I do not find that argument convincing. To my mind, it is more likely due to a lower retail interest than in 2017.
Searches for Bitcoin peaked in the third week of May 2021 and started to drop sharply after a significant price drop. Since then, they were mainly moving sideways and dropping further since the end of February 2022, indicating a drop in retail interest. 
Tweet-Volume data
Tweet-Volume data from The Block Crypto support this. Over the provided observation period (01/06/2019 until today), it peaked on May 23, 2021.
As opposed to the Google Trends data with the price increasing a second time in 2021 during the second half of 2021 Tweet volume has also increased again.
Graph 7: Tweet Volume Bitcoin and Ethereum (Source: The Block)
Graph 7: Tweet Volume Bitcoin and Ethereum (Source: The Block)
However, since the end of January, it has been declining and has particularly done so since mid-April. 
Looking at Ethereum, the drop in Tweet volume is even more significant, as the sharp drop at the end of January/beginning of February shows.
New Weekly Twitter Followers of Data and Research Services
The decline in interest/activity can also be observed for the new weekly Twitter followers of data providers and services. On the aggregate, new weekly Twitter followers are declining for The Block, Messari, Coinmetrics, Santiment, Nansen, and five others.
Graph 7: Newly Weekly Twitter Followers of Data and Research Services (Source: The Block)
Graph 7: Newly Weekly Twitter Followers of Data and Research Services (Source: The Block)
There are many more metrics on the website by The Block to gauge activity and interest on social media, web traffic, or related to app usage. Writing about them here will get a bit repetitive due to the vast availability of different indicators on their website.
If you are interested in these measures or e.g. specific follower statistics for a particular service provider, look at their website. The data is freely available. 
To sum up, the vast majority of metrics indicate low activity on- and off-chain, pointing towards the fact that retail investors are still largely missing or that some are even leaving.
Considering that bitcoin’s price has already been ranging sideways for quite some time, this is not unexpected. “Boring” price action tends to drive out smaller investors and lead to capitulation.
I expect activity to come back once we see more significant price moves, or even bitcoin’s price reaching new all-time highs could be needed for retail to come back significantly. Hype and interest by retail correlate strongly with price.
Unfortunately, this means most retail investors may only buy bitcoin at higher prices than today.
What is next?
Next up is the interest rate decision by the Federal Reserve tomorrow on Wednesday. It is expected that they will hike rates by 50 basis points. While that hike is expected and should already be priced in, expect some volatility around the publication date.
Further, not all of the effects may be priced in, and while it might not immediately affect financial markets, some of the effects might only be observed over time. 
Interview BlingBling
For the German speakers: I have given an interview on bitcoin, financial markets, economic developments, on-chain analysis, and much more for the newsletter BlingBling by Philipp Mattheis. You can find the interview here:
"Bitcoin hat das Potenzial zum digitalen Gold zu werden"
Stay safe out there! Don’t trust! Verify! Make up your own opinion and consider multiple sources. 
Jan Wüstenfeld
If you found this newsletter insightful don’t forget to subscribe and share it. You would make my day! :-)
Also if you want to directly support my work, consider sending me some sats via the Lightning Network. Thank you!
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This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.
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Jan Wüstenfeld
Jan Wüstenfeld @JanWues

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