Bitcoin circulation rate remains low, which is why this could be bad for the rally

On-chain data shows that the Bitcoin circulation rate has continued to be low recently, which could be bad news for the current BTC rally.

Bitcoin circulation has remained low despite recent price increases

According to data from the analysis company at the chain Sentiment, 105,000 BTC moves per day at the moment. The relevant indicator here is the “circulation”, which measures the unique daily number of Bitcoin tokens that show some movement on the blockchain.

Since the metric only counts unique coins, it means that if a token has been moved on the network multiple times in a single day, the movement will still only contribute one unit towards the circulation indicator.

The reason the metric has this limitation is that a large number of the same coins move around the chain a lot in any given day, with only a handful of investors responsible for their movements. Many such transactions are relay transfers and other duplicate movements, which actually have little relevance to the market.

Thus, if the indicator only counts the sheer number of tokens being moved around, regardless of whether they were unique or not, it may present an inaccurate picture regarding the chain activity.

When the value of circulation is high, it means that a large number of unique tokens are seeing some transaction activity right now. Such a trend suggests that the blockchain is likely to observe the participation of a large number of unique users.

Now, here’s a chart showing the trend in Bitcoin circulation, as well as in its 30-day moving average (MA), over the past year:

Looks like the value of the metric has been quite low in recent days | Source: Santiment on Twitter

As shown in the graph above, Bitcoin circulation has remained at relatively low levels for quite some time now. The 3AC collapse back in June 2022 and the FTX crash in November 2022 were the last couple of instances where the indicator hit some highs.

These increases in computation were not unexpected, as crashes of this type generally attract a large number of new users to the network (and wake up some dormant old ones), thus leading to an increase in the unique number of tokens moved over. wallets on the blockchain.

Just as crashes can force people to make some moves, rallies can also have a similar effect on the network. However, despite the fact that the current rally started back in January this year, Bitcoin circulation has not shown any significant uptick so far.

According to the metric’s 30-day MA, coins are moving at a rate of 105,000 per day, which is 56% less than the one-year highs seen back in June 2022.

“When you look for validation of mid/long-term bull runs, the utility should increase,” Santiment explains. Since the utility of the cryptocurrency has not increased recently, it is possible that the rally may run out of steam before long.

BTC price

At the time of writing, Bitcoin is trading around $28,300, down 1% in the last week.

BTC has been moving sideways in the last few days | Source: BTCUSD on TradingView

Featured image from Maxim Hopman at Unsplash.com, Charts from TradingView.com, Santiment.net