The on-chain analytics firm Glassnode has revealed how much of the total cumulative Bitcoin volume reflects ‘real’ transactions.
Entity-Adjusted Approach For Bitcoin Volume Reveals Shocking Fact
In its latest weekly report, Glassnode has discussed about how some of the metrics core to the Bitcoin network are like after the cryptocurrency’s price has claimed the $100,000 milestone.
Among these indicators is the “Transfer Volume,” which measures the total amount of the cryptocurrency that’s becoming involved in transactions on the blockchain every day.
Below is the chart for the metric shared by the analytics firm that shows how the cumulative value of this metric has developed over the course of the asset’s history.
The value of the metric appears to have reached a new milestone recently | Source: Glassnode's The Week Onchain - Week 50, 2024
From the graph, it’s visible that the cumulative Bitcoin Transfer Volume (colored in green) rose sharply during the last cycle, but it has slowed down in this new cycle. Nonetheless, the indicator has continued to see growth, as it has now crossed the $131 trillion mark.
Note that the volume here is calculated based off the USD value at the time a given transaction was executed on the network, rather than using the total BTC volume converted to dollars at the current exchange rate.
In the same chart, Glassnode has also attached the data of another metric: the Entity-Adjusted Transfer Volume. This indicator calculates the cumulative Transfer Volume happening between different entities.
An ‘entity‘ here refers to a cluster of addresses that the analytics firm has determined to belong to the same investor. Transactions between the addresses of the same holder aren’t really relevant to the wider market, so Entity-Adjusted metrics tend to provide a more accurate representation of trading activity.
“After applying entity adjustment, the filtered transfer volume stands at $11.63 trillion, just 8.86% of the total,” notes Glassnode. This means that less than 9% of the total Bitcoin volume has involved transfers that are economical in nature.
Does this mean most BTC activity is ‘fake’? Well, the answer to that depends on how one defines ‘real’ activity. If activity is instead gauged using the pure number of transactions rather than their value, then a very different picture of the network is produced.
Here is a chart from the same report that shows the data in the cumulative Transaction Count for the cryptocurrency, both the unfiltered and Entity-Adjusted versions:
Looks like the difference between these two metrics isn't too significant | Source: Glassnode's The Week Onchain - Week 50, 2024
As displayed in the above graph, the unfiltered Transaction Count for Bitcoin, although still greater, doesn’t have too much of a difference from the Entity-Adjusted metric.
This would imply that the 840 million transfers between different entities have made up for just 8.8% of the Transfer Volume. The takeaway here is naturally that the volume inflation has come from internal management by centralized exchanges, as these platforms hold very large amounts and so, their volume also tends to be high.
While such transfers may not contribute to Bitcoin price action, they are still ‘real’ transactions from the perspective of the network, imparting visible impact in terms of the miner transaction fee revenue.
BTC Price
At the time of writing, Bitcoin is trading around $101,100, down almost 2% over the last week.
The price of the coin appears to have surged in the last two days | Source: BTCUSDT on TradingView
Featured image from Dall-E, Glassnode.com, chart from TradingView.com
