6th July, 2021 — Dr. Raffael Huber



Over the past weeks, cryptocurrency markets have entered calmer waters. Volatility retraced from its high levels as the market came to terms with the new regulatory landscape in China regarding mining and crypto-related financial services.

One of the most immediate effects of the new regulation has been a drop in the hash rate of Bitcoin. Despite BTC being roughly at the same price levels as in January, the hash rate is currently markedly lower and sits at roughly 90 million TH/s (versus 150 million TH/s in January). This might be due to migration of the mining equipment but may also point to a shortage of hosting facilities for Bitcoin miners outside of China. Due to this, the mining difficulty also saw one of its largest downwards adjustments of -28%.

Illustration 1: Bitcoin’s hash rate peaked slightly after price in early May and started dropping sharply in response to Chinese regulations and the price decrease.
Source: blockchain.com, coingecko.com, Bitcoin Suisse Research.


On-Chain Activity Drops

Meanwhile, activity that can be monitored on-chain also dropped. The number of unique BTC addresses has dropped together with price and the hash rate to below its levels at the beginning of the year. This number typically tracks price and volatility to some extent as more coins are shuffled, for example, between various exchanges.

Illustration 2: The number of unique BTC addresses currently sits at roughly 500’000, compared to roughly 800’000 in February through March.
Source: blockchain.com, Bitcoin Suisse Research.


The number of transactions paints a similar picture: It maintained a relatively constant level of 300’000 transactions per day over the past year and has just now, over the past two months, started dropping to lower levels of ca. 200’000 transactions per day.

Illustration 3: Currently, around 200’000 transactions per day are recorded on the Bitcoin blockchain, down -33% from its previous level of ca. 300’000 transactions per day.
Source: blockchain.com, Bitcoin Suisse Research.


Ethereum: Similar Trends

Looking at Ethereum, some key on-chain metrics also show reduced levels of activity. The number of transactions maintained a high level of ca. 1.2 million per day throughout the second half of 2020 and started rising with price in 2021 until its peak in May.

Illustration 4: Daily transactions on Ethereum peaked together with the ETHUSD price in May at around 1.7 million transactions per day. 7-day simple moving average shown.
Source: etherscan.io, coingecko.com, Bitcoin Suisse Research.


Analogously, the number of daily active addresses on Ethereum peaked in May and has returned to its February/March levels of circa 500’000.

Illustration 5: The number of daily active addresses continuously rose throughout September 2020 until May 2021 and peaked at close to 800’000. 7-day simple moving average shown.
Source: etherscan.io, Bitcoin Suisse Research.


On the other hand, block space on Ethereum has become cheaper again. Currently, gas prices hover again in the low double digit or even single digit GWei areas (1 GWei = 1 billionth of an ETH). This means that the cost for a simple ETH send is now about $0.50, or that swapping a token on Uniswap costs ca. $4. Besides lower activity, a recent raise of the block size limit (gas limit) as well as more efficient auction mechanisms for miner/maximum extractable value and second layer adoption might be responsible for the low gas prices.

The low gas prices also mean that the short-term impact of EIP-1559 on supply and demand dynamics might be lower. However, its benefits to user experience and long-term connection of network activity to token supply remain.

Illustration 6: Transactions on Ethereum have become cheaper, as gas prices (in GWei) have dropped considerably from >100 GWei prices down to single digits. 7-day simple moving average shown.
Source: etherscan.io, Bitcoin Suisse Research.


Developers are using these cheap gas prices to deploy smart contracts. The number of verified smart contracts (on Etherscan, the most popular Ethereum block explorer) is almost at its all-time high, and innovation continues in DeFi and elsewhere (for example with automated Uniswap v3 liquidity managers).

Illustration 7: The number of daily verified smart contracts is almost at its all-time high, with around 320 smart contracts verified on Etherscan per day. 7-day simple moving average shown.
Source: etherscan.io, Bitcoin Suisse Research.



Overall, the summer doldrums seem to have taken hold of the crypto markets, both from the perspective of trading volume as well as on-chain activity. Nonetheless, these less-active times offer opportunity to test out, for example, DeFi protocols (making use of the low gas prices) or to deploy new smart contracts for future use.

  1. Homepage
  2. Research
  3. State of Bitcoin and Ethe...