Bitcoin's price has been hovering near its all-time high, prompting market observers to scrutinize underlying network fundamentals to assess the sustainability of this impressive rally. While key indicators show strong support, a notable divergence between price and on-chain activity presents a crucial challenge that must be addressed for continued upward momentum.
Underlying Strengths and Scarcity Narrative
Several factors are contributing to Bitcoin's robust market position. The Bitcoin Z-Score, a measure of price deviation from its average, sits at a healthy +1.5σ, indicating strength without being "overheated," suggesting room for further growth. Miners, often a source of selling pressure, are currently playing a supportive role, with their selling activity (Miners’ Position Index) remaining below the yearly average. This reduction in miner-led supply helps maintain market stability. Furthermore, Bitcoin’s Stock-to-Flow (S2F) ratio has surged by 75%, reinforcing its scarcity appeal, especially post-halving. Historically, high S2F values have coincided with bullish phases, bolstering investor conviction in Bitcoin’s digital gold narrative.
The Activity-Price Divergence: A Key Hurdle
Despite these bullish signals, a critical aspect of Bitcoin's rally remains its Activity–Price Divergence (APD), which indicates that price growth is still outpacing on-chain activity. While this gap has narrowed, it has not closed. For the rally to be sustained, a significant increase in network participation is required. Encouragingly, there are signs of improvement: new addresses have increased by over 25%, active addresses by more than 11%, and the number of zero-balance wallets has declined. If this growth in on-chain activity continues and deepens, it could narrow the price-activity gap, thereby fortifying long-term price support and ensuring the rally's durability. Conversely, a failure for fundamentals to catch up may necessitate a price correction to realign with network performance.
