Bitcoin Rips Above $29,000, But Why Is The Mean Transaction Size At A 3-Year Low?

Bitcoin prices might be firmer when writing on May 4, rallying above $29,000 and breaking above local resistance levels in lower time frames. But the Mean Transaction Size, based on the 7-day moving average, is at a 3-year low, according to Glassnode, a blockchain analytics firm.

The Mean Transaction Size relays the average transaction size over a given period. It can be used as a lead to gauge the level of activity. Typically, the higher the demand for BTC, the better the prices.

Considering the decentralized nature of public networks, including Bitcoin, transactions are packed in blocks before being confirmed and added to the longest chain. 

The size of each Bitcoin block is fixed at 1 MB; therefore, the number of transactions that can be packed in a block directly depends on the size of each transaction. On average, BTC transactions can be between 300 and 400 bytes. Coupled with the set transaction processing time of roughly 10 minutes, transaction sizes, and by extension, the block size cap, directly impacts the network’s throughput.

A notable observation is that the mean transaction size in Bitcoin has been rapidly falling over the past few weeks. There was a sharp expansion from late January 2023 when the mean transaction size rose from around 590 to 1,195 in mid-February.

It then see-sawed in the following weeks, falling from 1,192 in late March to 820 in early April. It crashed to 467.949 on May 2, the lowest in three years.

#Bitcoin $BTC Mean Transaction Size (7d MA) just reached a 3-year low of 467.949

Previous 3-year low of 468.425 was observed on 02 May 2023

View metric:https://t.co/PJ0bkLTuVs pic.twitter.com/WNZE2VmaOM

— glassnode alerts (@glassnodealerts) May 4, 2023

The initial expansion in late January could be attributed to the launch of the Bitcoin Ordinals platform. The portal allows individuals to attach files, including texts, images, and videos, to Satoshis. Afterward, these files are stored in Bitcoin blocks after being confirmed by miners. 

Because each file is unique and exists as a transaction, every Ordinal stored in a Bitcoin block has been compared to non-fungible tokens (NFTs), though they are not technically NFTs. And Dune data shows that over 3.5 million inscriptions have been added to the Bitcoin network. 

However, while the number continues to rise, there is a marked shift in the types of files attached. In the early days of the Bitcoin Ordinals, there were more images, which were bigger than texts and other files, such as audio or applications. 

Over the months, this has changed, and there are more text inscriptions. Texts are smaller in size than, for example, images or videos. 

As such, this might explain the rapid drop in the mean transaction size based on the 7-day moving average, especially over the last few weeks from April 2023.