Bitcoin's Network Activity Slump: Consolidation Looms

Bitcoin's network activity and user demand have been decreasing, potentially leading to continued consolidation in the cryptocurrency's price. This trend mirrors the market conditions observed in March 2024, when Bitcoin experienced a similar phase of consolidation.

On-chain data indicates a decline in daily active wallet addresses, with a 2% drop since February 1. This reduction signals a decrease in user demand and could exert downward pressure on Bitcoin's price. Additionally, the Unspent Transaction Output (UTXO) count has been declining, suggesting lower transaction activity and possible investor hesitation. However, broader market indicators remain bullish, suggesting a potential stabilization in the market.

Analysts, such as pseudonymous CryptoQuant analyst Avocado_onchain, have noted the steady decline in Bitcoin network activity, contributing to the cryptocurrency's recent narrow price movements. If this trend continues, another prolonged consolidation phase could be on the horizon, similar to the one that began in March 2024.

The number of daily active wallet addresses on the Bitcoin network has plummeted by 2% since February 1, as observed using a 30-day small moving average (SMA). This decline in active daily wallets signals reduced user demand, which can contribute to downward price pressure on the coin. Decreased network activity typically aligns with lower buying interest, further emphasizing the potential for continued consolidation.

In addition to the decline in active daily wallets, Avocado reports that the number of UTXOs is also decreasing, with the magnitude of the decline similar to the correction period in September 2023. A decline in UTXOs suggests reduced transaction activity, indicating a period of consolidation where investors are holding rather than spending their coins. While this trend could potentially lead to signs of investor exodus, other indicators still suggest a bullish outlook, making it difficult to confirm the end of the current cycle.

As of this writing, Bitcoin hovers near the support line of its horizontal channel at $95,527. If the Bitcoin network activity wanes further, affecting the demand for the king coin, its price could break below this level. In this scenario, Bitcoin could drop to $92,325. However, if market trends shift and buying pressure gains momentum, the coin could rally toward the resistance at $99,031 and attempt a crossover, potentially reaching $102