On-Chain Silence Before The Storm

September 1, 2021

Cycling On-Chain (COC) is a monthly column that uses on-chain and price-related data to better understand recent market movements and estimate where we are in bitcoin’s market cycle. This fourth edition briefly reflects on the recovering hash rate and then takes a more in-depth look at the relatively low on-chain transfer activity on Bitcoin. After introducing several contributing factors, we discuss to what extent low on-chain activity is reflective of market demand for bitcoin (the asset) or whether monitoring HODLing behavior is actually more useful in the context of bitcoin’s value proposition.

Two months ago, in COC #2 (July 1, 2021), we pointed out two important factors that needed a bit of time to settle, before potentially creating a favorable situation for Bitcoin from a fundamental perspective later this summer — which is now starting to unfold. One was the El Salvador government making bitcoin a legal tender in their country, which is now set to go into effect next week (September 7, 2021).

The other was the major crackdowns on bitcoin by the Chinese government, driving miners out of their country, potentially actually improving the geological distribution of bitcoin mining activity that was heavily concentrated in China up to that point. Some feared a hostile takeover (a 51% attack) of the network by the Chinese government, which has not happened (yet?).