The growth of the Bitcoin network is in decline; here’s what it means for bulls

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Symbiosis

Investors are increasingly optimistic about the outlook for the coronavirus and it shows in the rise of the US stock market. This sense of optimism, however, is not visible in the crypto markets and on-chain data reveals that Bitcoin is turning bearish.

Optimism grows in the US stock market

Over the past few days, the US stock market has seen an impressive rally given the state of turmoil surrounding global economies.

The Dow Jones Industrial Average, for example, has risen more than 300 points since Monday. Meanwhile, the Nasdaq Composite and S&P 500 jumped nearly 4.8% and 2.5%, respectively.

The Federal Reserve’s unprecedented measures to ease the ravages of the ongoing pandemic appear to have boosted the stock market. And now some of America’s biggest banks, such as Goldman Sachs and Morgan Stanley, are increasingly optimistic about what the future holds.

This sense of optimism, however, has yet to spill over into the cryptocurrency market. Indeed, some of the most prominent figures in the sphere remain extremely apprehensive about Bitcoin’s prospects.

Fear reigns in the cryptocurrency market

In April’s edition of “Crypto Trader’s Digest”, BitMEX CEO Arthur Hayes suggested that despite recent performance, he could see the flagship cryptocurrency retest the $3,000 price levels. The former institutional trader argued that the likelihood of this happening is “absolutely [likely …] if the S&P 500 returns and tests 2,000.”

Along the same lines, American programmer Ross Ulbricht, also known by his online nickname “Dread Pirate Roberts”, explained that Bitcoin is currently entering the second phase of the ongoing bear market. Ulbricht said that BTC could go back to $2,000 or even $1,000 by June or July, or until 2021.

It is too early to tell if Bitcoin is doomed as a hedging asset in this economic environment. Nonetheless, on-chain metrics reveal plenty of friction for BTC to reach new highs.

On-Chain Signs of Another Bitcoin Drop

InTheBlock affirmed that for the first time in a long time, the growth of the Bitcoin network is down. More than 450,000 addresses have gone to zero in the past week. Meanwhile, the total average of new addresses created is around 383,000.

According to Brian Quinlivan, director of market and social media at Santiment, declining network growth for an extended period can usually indicate a future price drop.

Bitcoin Network Growth by IntoTheBlock
Bitcoin Network Growth by IntoTheBlock

Coincidentally, the futures markets are also showing an “aggressive” sign of short selling. The open interest for Bitcoin contracts is rising while the price is falling. Jesus Rodriguez, CTO at IntoTheBlock, considers this a “classic bearish sign”.

Bitcoin Open Interest by IntoTheBlock
Bitcoin Open Interest by IntoTheBlock

Given the high levels of uncertainty in the crypto market, the chances of Hayes and Ulbricht’s pessimistic outlook materializing are not low. Now that earnings season has begun, investors will have solid data on the depths of the pandemic’s economic impacts. This could certainly serve as a clue as to where Bitcoin is headed next.

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