• Early Bear phase: Daily transaction values have dropped right down to around 100k BTC a day. Price is falling.
• Late Bear phase: Daily transaction values are rising. Price is broadly flat.
• Bull phase: Daily transactions have reached a sufficient minimum value (220k in the last market cycle, 150k in the one before) where the market finally responds and price starts to increase. We will explore in a moment why this phenomenon occurs.

So by monitoring the blockchain momentum in this way we are able to identify when we are closing in on the start of the next BTC price bull run.

Why is network BTC daily transaction value a leading indicator to Bitcoin price?

To understand this, we need to recognize that there is a divergence in behavior between short-term market participants who are dictating short-term price action, and longer-term HODL’ers and investors who are purchasing Bitcoin on-chain.

This explains why we see both daily transaction values and price exhibit cyclical patterns but not in sync with each other. Both are driven by different human emotions and motivations.

Short-term mindset traders heavily influence the Bitcoin price, long-term mindset investments are more likely to be recorded on the blockchain so have a greater contribution to the network BTC daily transaction value.

So why does price lag behind when daily transactions are initially increasing during that Late Bear phase we saw in the previous chart?

At this stage as short-term mindset market participants continue to sell, big buyers with a long term view are stepping in. The buyers’ volume steadies the price decline over time and creates the sideways accumulation zone where sells are roughly equal to buys. More and more smart money investment starts to come in until eventually the ‘healthy’ level of BTC daily transactions is reached. This is the point where the general market herd realizes that things are looking good again for Bitcoin (with its strong level of daily blockchain activity) so price goes up and the next bull market and FOMO cycle starts all over again.

It is worth remembering that this Late Bear phase needs to occur before we see a significant price increase. Which is why I become concerned when I see people expecting the price of Bitcoin to jump up immediately on news stories about institutions planning to buy into crypto. Even if they do, we still need actual network daily transaction value in BTC terms to increase to a sustained healthy level before price reacts in a significant way.