After making a strong rally from $ 3,775 to $ 6,450, Bitcoin price traded in a tight range where price struggled to overcome resistance at $ 6,400 and $ 6,850. Despite the current pullback, technical indicators like the Stock-to-Flow model and the consistent growth of hash rates show that investors have regained a small amount of confidence.
Another factor worth considering is the Bitcoin mempool size as it can also provide some insight into how buyers and sellers react during these uncertain times.
What is mempool?
Mempool is where all unconfirmed Bitcoin transactions wait until all confirmations are issued to close each transaction. The higher the mempool size, the longer the time to confirm transactions is because the blocks have to be confirmed (requires more input energy).
If the congestion occurs in the mempool due to the unusual size of the transaction pending confirmation, there may be a higher transaction fee for timely processing.
Bitcoin's mempool size hit a record high of more than 130MB / block in January 2018, a few days after Bitcoin's price surpassed its all-time high at $ 20,000.
Bitcoin Mempool size (MB / Block) from June 2016 to March 2020. Source: Blockchain.com
This may suggest the relationship between the number of transactions pending confirmation and the price of Bitcoin. If that is the case, the relationship will reverse during the correction period as an investor is facing now.
2020 shows an inverse relationship in mempool size and Bitcoin price
Looking at the period from February 19 to March 13, when Bitcoin lost 60%, we found that the correlation between mempool size and Bitcoin price was -41.2%. This is a very high relationship considering that the correlation in the whole period of 2020 is almost negligible at 2.34%.
A 100% correlation means that Bitcoin price and mempool size move completely in the same direction, while a -100% correlation means that they are completely inverse. A 0% correlation means that the variables are not related in any way.
Current activity reflects 2016
During the correction period in 2016, when Bitcoin lost more than 20% in price, we saw a similar negative relationship between mempool size and Bitcoin price, even though both were highly disparate in value. One period had a very negative correlation (-83.1%) and another one was slightly negative (-4.6%).
In the six periods when prices fall by 20% in 2017 and 2018, we find a confusing relationship between correlations and this makes it difficult to draw firm conclusions.
The correlation between Bitcoin price and its mempool size for different correction periods in 2017
However, if we look closely at the two periods that occurred in the second half of 2017 when Bitcoin reached a record price, both periods showed an inverse relationship between mempool size and Bitcoin price.
From November 8 to November 12, the relationship was very negative (-85.9%), while from December 17 to December 25, the correlation was small (-5.6) %).
Correlation between Bitcoin price and its mempool size during the correction period in 2018
Positive relationship in 2019
In 2019, four out of the five corrective periods were determined to show a positive correlation between Bitcoin mempool size and its price, except for the last stages, showing a slight negative correlation.
Correlation between Bitcoin price and its mempool size in 2019
Positive correlation for the whole year period
When looking at the relationship throughout the year instead of just analyzing the correction periods, we found a clear trend and positive correlation between mempool size and Bitcoin price.
Moreover, a high correlation is seen in 2017 (80.8%) and 2018 (72.2%), although it is not possible to draw a conclusive trend when analyzing the corrective periods in the that year. A positive trend, although small in intensity, is also seen between both variables in 2016 (26.3%) and 2019 (9.5%). While in 2020, this relationship is almost non-existent (2.34%).
There is so much Bitcoin is moving
Last week, there was an increase in mempool size even as Bitcoin price was going down. We can see the expansion of this inverse relationship contributes to the uncertainty of Bitcoin price in the short term.
As filbfilb market analyst recently pointed out:
"I can't be surprised when I know there are too many BTCs on the move."
The amount of Bitcoin transferred in / out of exchanges last week has raised doubts about the inverse relationship between Bitcoin price and mempool.
According to Cointelegraph
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