The illusion of Bitcoin’s decline arises as protocol-driven transaction collapse distorts on-chain valuation signals

The latest Bitcoin network activity metrics reveal a paradoxical situation in which surface-level indicators suggest a decline, potentially misrepresenting its true value.

CryptoQuant research earlier this month showed that the Bitcoin Network Activity Index dropped to 3,760 points in early February, its lowest since February 2024. This 15% quarterly decline correlates with the collapse of RUNES protocol usage, which previously accounted for 70% – 80% of OP_RETURN transactions by the end of 2024.

Metric
Reported Value
Organic Component
Protocol Component

Daily Transactions
343,906
294,712 (85.7%)
49,194 (14.3%)

Active Addresses
675,585
598,234 (88.5%)
77,351 (11.5%)

Mempool Depth
3,000
2,610 (87%)
390 (13%)

RUNES protocol’s daily transaction share plummeted from 802,000 at peak adoption to just 10,000 by this month, artificially depressing network metrics. This decline has led to a significant reduction in the mempool backlog, falling from 287,000 pending transactions in December 2024 to 3,000.

The drop in daily active addresses, down around 12% year-over-year to 728,130, is largely attributed to RUNES-associated addresses that weren’t conducting BTC transfers. This creates a valuation paradox where Bitcoin appears overvalued at $99,000 against Metcalfe bands ($48k-$95k), while adjusted organic activity metrics suggest a fair value between $86k and $112k.

By focusing on these organic metrics, the adjusted valuation model suggests that Bitcoin’s true network value is higher than what surface-level indicators imply. This approach attempts to correct for the artificial suppression of activity metrics caused by the collapse of non-Bitcoin protocol usage

February 2025 data shows Bitcoin operating as a pseudo-two-layer network, with stable organic BTC transfers and a significant reduction in protocol-driven transactions. This bifurcation creates competing signals, potentially leading to mispricing in traditional valuation models.

The situation presents a unique opportunity due to the convergence of temporal metric decay, institutional accumulation, and derivatives divergence. Coinbase institutional inflows hit $4.5 billion daily despite retail metric declines, with 72% of transfers going to cold storage.

This period may represent a historic divergence between reported on-chain metrics and Bitcoin’s fundamental network health, creating ideal accumulation conditions for informed investors.

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