Bitcoin's Price Rally: Network Activity Lagging Behind?
Bitcoin's Ascent Faces Headwinds
Bitcoin [BTC] is testing all-time highs, but a key indicator suggests the rally might not be fully supported by network fundamentals. While several factors point to continued bullish momentum, a significant gap between price and on-chain activity raises concerns about the rally's sustainability.
The Bitcoin Z-Score, currently at +1.5σ, indicates strong positive momentum but remains below the +2.5σ level typically associated with market overheating. This leaves room for further price appreciation.
Activity-Price Divergence
The Activity-Price Divergence (APD) remains at -1.5, indicating that price growth continues to outpace on-chain activity. Although this gap has narrowed, it hasn't closed completely, suggesting a potential vulnerability in the current rally. This Activity-Price Divergence could signal a need for price consolidation.
Miners' Role in Price Stability
Bitcoin miners appear to be moderating their selling pressure, contributing to price stability. The Miners' Position Index (MPI) currently sits at -0.46, suggesting that miner outflows are below their yearly average.
Reduced Selling Pressure
Despite a 25.8% increase in the MPI over the past 24 hours, it still reflects restrained selling behavior. This reduction in supply from miners can help stabilize the market, especially during periods of increased volatility.
Source: CryptoQuant
Scarcity Narrative and Stock-to-Flow
Bitcoin's scarcity narrative is further strengthened by a rising Stock-to-Flow (S2F) ratio. At the time of writing, the S2F ratio surged to 1.5923 million, marking a 75% increase.
Impact of Scarcity
Historically, high S2F ratios have coincided with bullish market phases, as tighter supply boosts investor confidence. The recent halving event is likely to amplify scarcity-driven demand from both retail and institutional investors.
Source: CryptoQuant
On-Chain Activity Needs to Catch Up
On-chain activity is showing signs of improvement. Recent data indicates that new addresses are up 25.47%, and active addresses have increased by 11.11% over the past week. Additionally, zero-balance addresses have decreased by 2.69%, suggesting more wallets are holding BTC.
Strengthening Market Resilience
Sustained growth in on-chain activity can expand the user base, deepen liquidity, and strengthen market resilience. If this trend continues, it could narrow the price-activity gap and provide long-term price support. Platforms like Codeum can play a vital role in ensuring the security and reliability of blockchain networks during periods of increased activity.
Source: IntoTheBlock
Conclusion
Bitcoin's price is showing strength, driven by reduced miner selling, a rising Stock-to-Flow ratio, and increased on-chain participation. However, the lagging network activity creates a gap that needs to be addressed for the rally to be sustainable. If the underlying fundamentals continue to strengthen, the price rally can maintain its momentum. Otherwise, a price correction may be necessary to align with on-chain performance.