Grayscale, which won the lawsuit against the U.S. Securities and Exchange Commission in August, used a clever interest rate spread strategy to attract a large amount of funds from financial institutions to flow into the U.S. BTC market. In a few years, it has become the "stabilizing force" in the BTC market. In early October, Grayscale pointed out in its monthly market report that Bitcoin performed strongly compared with traditional assets in September, highlighting the diversified nature of cryptocurrencies. The author also observed that the correlation between BTC and the S&P 500 has dropped to the level before 2020 and no longer has a significant statistical correlation. In addition, the top high-frequency quantitative funds such as Jump have reduced their operations in the market, and BTC seems to have entered a "vacuum" state again.

In addition, the report also emphasized that strong fundamentals played a key role as Bitcoin's on-chain indicators improved this month. On-chain data has become an indispensable indicator for many giants in the industry. As the attention to on-chain data gradually increases, more and more companies and investors use it as an important reference for decision-making and investment. In this article, we will take a deeper look at BTC based on OKLink's on-chain data.

BTC has market resilience, but on-chain data is not that optimistic

• Overview of address changes: New addresses slightly exceeded the monthly average in Q3 by 0.02%, and the number of active addresses increased by 7.24% in September

  
  

From January 1 to October 8, 2023, the number of BTC on-chain addresses increased from 1,070,107,188 to 1,199,213,543, achieving a growth rate of 12.06%. This shows that the Bitcoin network has attracted more users and participants this year, showing a sustained growth trend.

In data from the third quarter (Q3) of 2023, the rate of new Bitcoin addresses in September was 1.34%, exceeding the average monthly growth rate in Q3 by only a slight margin of 0.02%.

Source: OKG Research, OKLink

In terms of active addresses, as Grayscale said, it increased by 69,783 in September, a growth rate of 7.23%. But when entering October, from September 30 to now (October 8), the number of active addresses has dropped by 160,275, a decrease of 15.50%.

• After excluding zero-asset addresses, the number of addresses and whale addresses both showed a downward trend in September.

  
  

After excluding 0 assets, the number of Bitcoin addresses and whale addresses in September showed a downward trend. According to OKLink data statistics, after excluding 0 asset addresses, the number of Bitcoin addresses in September decreased by 24,817 compared with August, which is not good compared with the number of new addresses in August, which was 456,217.

At the same time, in terms of whale addresses, 9 addresses were reduced in September, while in August, there were 10 new whale addresses. This means that in September, the number of Bitcoin addresses held by whales has declined to a certain extent.

• Compared with the performance of other L1 markets: BTC, which performs well in the number of daily active addresses, is not the top in the industry, and ETH is better than BTC in terms of newly added non-zero asset addresses.

  
  

Looking at the entire industry, BTC, which performs well in terms of the number of active addresses, ranks fourth in the industry, second only to Near.

Source: OKG Research, OKLink

ETH has always been compared with BTC by the market. We can observe that ETH is slightly lower than BTC in terms of new addresses. However, after excluding 0 asset addresses, compared with BTC, ETH has achieved significant growth in the number of addresses, while BTC has shown a downward trend in September.

Source: OKG Research, OKLink

Ordinals and Inscriptions are the main reasons for the active ecology on the BTC chain

Since the end of last year, Bitcoin Core contributor Casey Rodarmor created the Ordinals protocol, introducing the concepts of Ordinals and Inscriptions, which gave birth to the first NFT on the Bitcoin network. On March 8, 2023, DOMO proposed to use Ordinals in the JSON data format to implement token contract deployment, minting, and transfer. Since then, the BTC ecosystem has sparked heated discussions in the market.

Source: brc-20; Date: Oct 8, 2023

According to Mempool data, since February, the demand for Bitcoin has been in short supply, the so-called "seller's market". The more unconfirmed transactions in Mempool, the more transactions are initiated, and the higher the demand for on-chain use. This high demand has continued to this day and coincides with the release of Ordinals and Inscriptions.

Furthermore, by comparing the transaction size and transaction number, we can observe that in September, the amount of each transaction was relatively small, that is, small transactions were the main ones. However, it can be preliminarily seen from the chart that after September 23, the amount of each transaction began to show an upward trend. One of the factors may be that more investors have more confidence in the BTC ecosystem and are willing to make large transactions, thereby driving the growth of the amount of each transaction.

Source: Glassnode

What the on-chain data tells us

By analyzing Bitcoin’s on-chain data, comparing it with other L1s, and conducting in-depth research on the Bitcoin ecosystem, we have two main findings:

1. Active addresses alone cannot fully explain that BTC's on-chain indicators have improved this month. The number of whale addresses and the number of addresses after removing 0 assets decreased in September.

2. The activity of on-chain addresses does not necessarily reflect the activity of BTC investors. After in-depth ecological analysis, it can be said that on-chain activities are more indicative of investors’ confidence in the BTC ecosystem . Ordinals and Inscriptions are the main reasons for the active ecology on the BTC chain. And through the analysis of the amount of a single transaction, we can observe signs that market sentiment is recovering.

On-chain data, as verifiable data that reflects blockchain transaction activities in real time, reflects the activity direction of a few people in the industry or the more "cutting-edge core". For public chains, all developments of their core technologies or application innovations occur on the chain, just like Bitcoin's Ordinals and Inscriptions. Its advancement can be said to be a weather vane. Rather than saying that on-chain data constitutes the fundamentals of this chain, it is better to say that this fundamental is different from the ordinary stock market, and it emphasizes "advancedness". After all, the technological nature of blockchain technology also brings certain barriers to participants.

As the proportion of mature investors in the industry increases, the analysis of on-chain data is becoming an important reference for investment decisions. It is like a microscope for the market, able to penetrate deep into the ecosystem and reveal the inner world of the chain through various indicators. It is worth emphasizing that this data cannot be falsified.

Final Thoughts

Judging from the on-chain data, the story of BTC is gradually escaping from the setting of "expensive payment tool". Ecological innovations including Ordinals, Inscriptions, BRC20, etc. will become the main force to continue writing, providing more possibilities for the BTC ecology. In addition to the on-chain data analyzed in this article, BTC halving (block reward halving) is also one of the important factors affecting the BTC market. By reducing the speed at which new Bitcoins enter the market, the halving effectively reduces the available supply. According to OKLink data, on October 8, we ushered in the 200-day countdown to the BTC halving. We will wait and see the more open and innovative future of BTC!