Bitcoin tears above $29,000, but why is the average transaction size at a three-year low?
Bitcoin prices may be firmer at the time of writing on May 4, rising above $29,000 and breaking above local resistance levels in lower timeframes. But the average transaction size, based on the 7-day moving average, is at a 3-year low, according to Glass nodea blockchain analytics firm.
Bitcoin’s average transaction size is crashing
Average Transaction Size relays the average transaction size over a given period. It can be used as a clue to measure the level of activity. Generally, the higher the demand for BTC, the better the prices.
Given the decentralized nature of public networks, including Bitcoin, transactions are packaged into blocks before being confirmed and added to the longest chain.
The size of each Bitcoin block is fixed at 1 MB; therefore, the number of transactions that can be packed into a block directly depends on the size of each transaction. On average, BTC transactions can be between 300 and 400 bytes. Along with the stated transaction processing time of approximately 10 minutes, transaction sizes and by extension the block size limit directly affect network throughput.
A notable observation is that the average transaction size in Bitcoin has fallen rapidly in recent weeks. There was a sharp expansion from the end of January 2023 when the average transaction size rose from around 590 to 1,195 in mid-February.
It saw in the following weeks, falling from 1192 in late March to 820 in early April. It crashed to 467,949 on May 2, its lowest in three years.
📉 #Bitcoin $BTC Average Transaction Size (7d MA) just hit a three-year low of 467,949
The previous 3-year low of 468,425 was observed on 02 May 2023
See calculation: pic.twitter.com/WNZE2VmaOM
— glassnode alerts (@glassnodealerts) 4 May 2023
Blame it on The Ordinals
The first expansion in late January can be attributed to the launch of the Bitcoin Ordinals platform. The portal allows individuals to attach files, including texts, images and videos, to Satoshis. Afterwards, these files are stored in Bitcoin blocks after being verified by miners.
Because each file is unique and exists as a transaction, each Ordinal stored in a Bitcoin block has been compared to non-fungible tokens (NFTs), even though they are not technically NFTs. And Dune data shows that over 3.5 million inscriptions have been added to the Bitcoin network.
But while the number continues to rise, there is a marked shift in the file types that are attached. In the early days of Bitcoin Ordinals, there were more images, which were larger than texts and other files, such as audio or applications.
Over the months this has changed and there are more text inscriptions. Texts are smaller in size than, for example, images or videos.
As such, this could explain the rapid drop in average transaction size based on the 7-day moving average, especially in the last few weeks from April 2023.
Feature image from Canva, chart from TradingView
