The Bitcoin blockchain has experienced a substantial rise in bandwidth utilization, surpassing 90% following the recent halving event. This increase is largely attributed to the emergence of new token standards and a higher volume of transactions. Despite facing considerable Fear, Uncertainty, and Doubt (FUD), the rate of Bitcoin adoption, along with transaction and trading activities, has remained steady.
Data from Dune Analytics highlighted a significant moment on June 20, when Bitcoin’s dominance in transaction share reached 91.4%. This overshadowed the shares of Runes at 6.8%, BRC-20 at 1.6%, and Ordinals at 0.2%. The spike in bandwidth usage after the halving is primarily linked to the adoption of new token standards such as BRC-20 and Runes. According to Dune Analytics, both token standards have shown substantial growth, with Runes transactions surpassing 750,000 on April 23, 2024.
The introduction of new token standards has provided greater incentives for development on the Bitcoin blockchain compared to other chains, enhancing Bitcoin’s ecosystem and attracting more developers. Runes, designed to establish fungible tokens on the Bitcoin blockchain, gained significant traction, leading to increased transaction volumes. This, combined with the adoption of BRC-20 tokens, has resulted in more complex transactions and greater interaction with the Bitcoin blockchain, significantly boosting its bandwidth load.
The recent Bitcoin halving event, which reduced block rewards for miners by 50%, prompted miners to prioritize transactions with higher fees to compensate for the decreased rewards. Analysts from Bitfinex have noted that heightened on-chain activity typically follows a halving event as traders and investors adjust their positions, leading to an increase in the number of transactions broadcast to the network. This pattern has contributed to the consistent rise in Bitcoin’s blockchain bandwidth utilization.
Market Volatility and ETF Outflows Impact Bitcoin
On June 21, Bitcoin faced significant challenges, dropping to its lowest level in over a month due to outflows from Bitcoin ETFs and a decline in market dominance as altcoins gained momentum. The cryptocurrency experienced a 2.3% drop, falling to $63,500. This price decline followed several days of outflows from U.S.-based spot ETFs, with nearly $500 million withdrawn since June 10.
The ETF outflows occurred alongside a surge in the U.S. dollar’s strength relative to several major currencies, reflecting an increasing risk-averse sentiment among investors. This shift was influenced by mixed macroeconomic data from the U.S. and the Federal Reserve reducing its forecast for rate cuts in 2024 from four to just one. Higher interest rates decrease the opportunity cost of holding riskier assets such as cryptocurrencies, which has contributed to Bitcoin’s recent price downturn.
Bitcoin’s declining price also coincides with a drop in its market share within the broader cryptocurrency market. The Bitcoin Dominance Index (BTC.D), which measures Bitcoin’s market cap relative to the rest of the crypto market, fell by 0.55% to 55.14% on June 21, continuing its decline from a local high of 56.29% on June 18. Investors have been reallocating their capital from Bitcoin to altcoins, particularly following the U.S. Securities and Exchange Commission’s (SEC) decision to end its investigation into Ethereum, the leading altcoin by market cap.
Institutional investors are also shifting their focus, with a CoinShares weekly report indicating withdrawals from Bitcoin-based investment funds and increased exposure to altcoins, mainly Ether. The report noted that outflows were concentrated on Bitcoin, with $621 million withdrawn, while $1.8 million flowed into short-Bitcoin positions.
Technical Analysis and Future Projections
Bitcoin’s recent losses are part of a broader correction within its current bull flag pattern. Bull flags are bullish continuation patterns characterized by two parallel downward-sloping trendlines following a significant upward movement. Technical analysis suggests that this pattern resolves when the price breaks above the upper trendline, potentially reaching the height of the prior upward movement.
As of June 21, Bitcoin’s price was retreating after testing the upper trendline of its bull flag pattern, potentially targeting a further drop toward the lower trendline below $60,000 by the end of June. Despite this, Bitcoin’s overall outlook remains optimistic, aiming for a breakout above the flag’s upper trendline at approximately $72,000. If this technical pattern unfolds as expected, Bitcoin could reach a bull flag target of around $88,000 by July or August 2024.