Crypto Market Outlook: Understanding Bitcoin’s Activity Slump Pre-Halving

The most recent data highlights an unprecedented slowdown in Bitcoin (BTC) and Ethereum (ETH) supply movement last year. Merely 30% of Bitcoin and 39% of Ethereum showed any signs of movement throughout the past year. This decline, analyzed since 2017, marks the lowest activity recorded for both cryptocurrencies.

Unprecedented Slump in Bitcoin and Ethereum Activity

The on-chain data showed an extraordinary drop in Bitcoin and Ethereum activity levels, the primary cryptocurrency and the leading altcoin, respectively. However, during its peak period between March 2017 and 2018, Bitcoin saw over 59% of its supply actively changing hands.

However, the past year witnessed only 30.12% of Bitcoin supply involved in transactions. Similarly, Ethereum, once experiencing an active supply movement of over 86% between July 2016 and 2017, also encountered a remarkable low, with only 39.15% of its supply in motion last year.

The steep decline in active supply hints at a significant HODLing trend among investors, signifying a preference to hold onto their BTC or ETH rather than engage in transactions—a trend often linked to potential price surges.

Bitcoin’s Activity Nosedive Preceding Block Reward Halving

Bitcoin’s dwindling activity levels before the upcoming halving, anticipated in April next year, stand out prominently. As per the reports, the record low active BTC supply notes a similar trend in untouched BTC sitting idle for three to five years. The impending block reward halving signifies a 50% reduction in the BTC reward received by miners per block.

Over the past three years, only 58.58% of Bitcoin supply has changed hands, a significant decline from over 73% at its peak in late 2019. The active BTC supply in the last five years dropped from a maximum of 83% to 70.13%. Meanwhile, inactive coin holdings are at an all-time high, coinciding with a network nearly at its transaction peak.

Possible explanations for this turmoil

What does this mean for the future of these cryptocurrencies? The recent shift in the cryptocurrency market liquidity has sparked various theories. Some attribute it to a cautious approach amid global economic uncertainties, while others credit it to increased institutional participation, known for long-term strategies. This liquidity change suggests a maturing market where investors are more selective about their project support. While the long-term outcomes remain uncertain, this shift demands investor attention and strategic preparedness.

What Investors Should Do?

Many experts advise investors to brace for the impact. To navigate a potentially less liquid market, investors should diversify their portfolios for risk mitigation and resist impulsive selling during market fluctuations. Thorough research before investing in any cryptocurrency project is crucial, offering a shield for portfolios in an evolving, less liquid market environment.