Since early 2024, Bitcoin and Ethereum have consistently declined active addresses. Data from CryptoQuant highlights that the number of active Bitcoin addresses has dropped from 1.17 million to 855,000, while Ethereum’s active addresses fell from 382,000 to 312,000. This decline indicates a lack of new investors entering the space, a critical factor for market growth, especially for bullish momentum.
A lack of new participants would imply dominance from current market participants. The investors who waited for the approval of the spot ETFs were already counted. Despite this expectation, the hype from broader movements that was expected has not happened.
The first key factor was the continuous quantitative tightening of the Federal Reserve that sucked out the liquidity from the market. This policy shift offset the probable effects of minor increases in the M2 money supply.
On the other hand, there is also an expectation that, eventually, the Fed will revert back to quantitative easing, meaning a new injection of liquidity. When that happens, maybe the flow of money will create the long-expected hype and rise in the number of active addresses. Until then, it’s all about patience.
Short-Term Bitcoin Flows Decrease
CryptoQuant also reported that the market might be preparing for the next upward trend. The most critical indicator, the Exchange Flow Multiple, went down. The metric shows the relation between inflows and outflows of Bitcoin on exchanges in the short term, considering a period of 30 days, compared to those over 365 days.
A low Exchange Flow Multiple suggests that inflows and outflows in the short run are way below that in the long run, speaking volumes about investor accumulation. This year, when the Exchange Flow Multiple was at its lowest, it signaled lower exchange activity, which may mean that investors have grown patient.
Patience among investors usually manifests in the early stages of the bull market, where smart money is unwilling to let their assets go in anticipation of higher prices in the near future. Additionally, corrections after a drop in prices usually end up with reduced exchange activity as traders wait for stability before making further trades.
The similar low patterns of Exchange Flow Multiple could be spotted beforehand, preceding the 2023 rally. Given that current levels have approached those lows once more, this may indicate that another upward movement has reached the market, where long-term holders refrain from suddenly liquidating their positions in anticipation of further gains in the future.
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