Bitcoin, the leading cryptocurrency, has been a focal point for investors and traders alike, but recent trends indicate a worrying decline in its network activity. Over the past six months, Bitcoin’s on-chain participation has been weakening, with a notable drop in the number of unique addresses engaging with the network. Despite the persistent transaction volume, which has remained relatively stable, the reduced breadth of participation is raising eyebrows among analysts and market observers.
Understanding the Decline in Active Participation
At the heart of the current situation is a significant reduction in the number of unique addresses actively engaging in Bitcoin transactions. Data from Glassnode highlights that the average number of active addresses plummeted from approximately 778,680 in mid-August 2025 to around 535,942 by February 23, 2026, marking a staggering decline of about 31%. This reduction in active addresses suggests that while the network continues to process a similar volume of transactions, the variety of participants has diminished considerably.
In the cryptocurrency space, transaction volume is often viewed as a primary indicator of activity. In contrast, the participation breadth, or the diversity of users engaging with the network, provides a clearer picture of overall health and sentiment in the market. The recent data indicates that fewer unique entities are responsible for the same amount of on-chain activity, a trend that has become increasingly evident as the bear market persists.
The Divergence Between Transaction Volume and Active Addresses
Interestingly, while the number of active addresses has seen a decline, Bitcoin’s transaction count has not followed suit in a similar fashion. In August 2025, the average transaction count hovered around 444,000 per day, and recent data from Blockchain.com indicates this number has remained relatively stable at approximately 439,000 transactions per day over the last 30 days. This stability in transaction volume, despite the dwindling number of active participants, presents a paradox that requires deeper examination.
This divergence suggests that while the network appears busy on the surface, the underlying activity is increasingly concentrated among a smaller group of participants. There are several potential explanations for this phenomenon. For instance, larger players may be consolidating their transactions, utilizing exchanges and custodians to batch withdrawals, or managing operational flows through fewer wallets. Consequently, the network can show a high transaction count while experiencing a significant drop in user engagement.
Blockchain analytical firm Santiment has provided further context to this trend, noting that since February 2021, Bitcoin has experienced a 42% decrease in unique addresses making transactions and a 47% decline in the creation of new addresses. This bearish divergence, while not indicative of an impending doom for Bitcoin, highlights a concerning trend of weakening utility metrics alongside rising market capitalizations.
The Implications of Low Fees on Bitcoin’s Demand
Another critical aspect contributing to the current state of Bitcoin’s network activity is the low transaction fees observed on the blockchain. Data from mempool.space indicates that average transaction fees have recently stabilized around $0.24, or approximately 1.8 sats/vB. These low fee levels starkly contrast with previous market cycles, during which increased competition for blockspace drove fees higher.
At the current transaction pace, the daily revenue generated from transaction fees falls below $100,000, a figure that remains insignificant when compared to the block subsidy, which is still around 450 BTC per day. While this situation does not pose an immediate threat to Bitcoin’s security model, it does reveal a longer-term reality that the network has not yet had to confront. The transition to a more fee-supported security budget—a topic that resurfaces with every market cycle—is not being tested due to the current lack of demand for blockspace.
In practical terms, the present state of low fees indicates that users are not competing aggressively for transaction inclusion. This environment can change rapidly during periods of market volatility or speculative surges, but for now, the Bitcoin network appears underutilized compared to previous bull phases.
The Macro Environment and Its Effects on Bitcoin Trading
The broader macroeconomic backdrop plays a significant role in explaining the trends observed in Bitcoin’s network activity. Over the past year, U.S. inflation rates have cooled, with the Consumer Price Index (CPI) recorded at 2.4% year-over-year in January 2026. This shift in inflation may typically support a rebound in risk appetite; however, the current market conditions are influenced by volatility catalysts, including tariff-policy uncertainties that impact interest rates and the U.S. dollar.
In such a volatile environment, both retail and institutional investors tend to reduce their trading activity. Retail participation often declines, and traders make fewer transactions. While institutions can remain active, they are increasingly likely to adjust their exposure through products that do not necessitate moving coins on-chain, such as exchange-traded funds (ETFs).
The Role of Bitcoin ETFs in Market Dynamics
Bitcoin ETFs have emerged as a central component in this evolving landscape. Recent data from Coinperps indicates that there have been significant outflows from U.S. Bitcoin ETFs, totaling approximately $3.8 billion over five weeks and around $4.5 billion year-to-date. These outflows reflect a shift in activity away from self-custody wallets and toward brokerage accounts. Despite the market remaining active, this transition underscores why the Bitcoin blockchain has become quieter, even as exposure continues to change hands.
This shift is indicative of Bitcoin’s evolving role as a financial product wrapped in institutional frameworks, where Layer 1 is increasingly used selectively for settlement, storage, and periodic transfers. Concurrently, the daily transactional energy within the broader cryptocurrency ecosystem is becoming concentrated in other areas, particularly stablecoins. Coin Metrics has noted that stablecoins are driving a significant portion of on-chain activity, with their supply nearing $300 billion and transaction volumes on the rise.
Three Scenarios for Bitcoin’s Future
The current decline in network breadth presents three plausible scenarios for Bitcoin over the next three to six months:
- Continuation of Apathy: In this scenario, active addresses could remain depressed within a range of 450,000 to 600,000. Transaction counts may continue to fluctuate, but without any significant collapse, and fees would likely remain low. ETF flows could persist in a flat to negative trend. While Bitcoin could still experience sharp price movements in response to macroeconomic headlines, on-chain participation would not reflect a broader recovery, positioning the asset more as a macro instrument than a network poised for expansion.
- Liquidity Thaw: This more optimistic scenario hinges on stabilizing risk appetite due to cooling inflation and easing expectations. If ETF flows shift from outflows to sustained inflows, a rebound in active addresses towards 650,000 to 800,000 would suggest a return of user engagement alongside price momentum. This scenario resembles a classic cycle recovery, where price gains are substantiated by growing on-chain participation.
- Structural Displacement: In this scenario, Bitcoin may rally while on-chain breadth remains muted. The dominance of ETFs, derivatives, and custodial settlements would continue, while stablecoins absorb more transactional demand across the cryptocurrency landscape. This situation would indicate a fundamental shift in Bitcoin’s role, evolving into a digital macro asset and settlement layer rather than a platform for broad, everyday retail activity.
In conclusion, Bitcoin’s current state reflects a complex interplay of declining on-chain participation, stable transaction volumes, low fees, and shifting macroeconomic conditions. As the cryptocurrency landscape evolves, the implications of these trends will be crucial to monitor for investors and analysts alike. The coming months will be pivotal in determining whether Bitcoin can regain its footing as a widely used network or if it will continue to transform into a more niche financial product.
