Bitcoin prices have bounced back in 2019 after abysmal performance in 2018 - but strong market returns for bitcoin investors may be masking a troubling underlying trend in bitcoin usage.
The price of bitcoin is up 123% year to date, and the Grayscale Bitcoin Trust (Btc) (OTC: GBTC) is up 143.3%.
Bitcoin prices remain down about 33% overall since the beginning of 2018, and bitcoin prices have not made new all-time highs in nearly two years.
Despite the relatively solid year-to-date returns for the top global cryptocurrency, at least one metric suggests bitcoin usage may not be catching on the way investors had hoped.
The total dollar value of daily bitcoin transactions recently dipped below $1 billion for the first time in about five months, according to Blockchain.com.
Bitcoin transaction volume peaked at over $4.6 billion during the bitcoin bubble in December 2017. That daily transaction value dropped below $1 billion in March of 2018 and mostly stayed below $1 billion throughout 2018 and early 2019.
Transaction value broke above $1 billion in May and stayed above that threshold in the months that followed until finally falling below $1 billion earlier this month.
The good news for bitcoin investors is that the number of daily transactions has remained relatively elevated, suggesting average transaction sizes are simply becoming smaller.
"What's funny is that the number of transactions hasn't gone down at all and actually remains extremely stable around 3.75 transactions per second," eToro analyst Mati Greenspan said last week.
After troughing at around two transactions per second back in April, Bitcoin transaction rates have risen to around 3.68 today.
Peak transaction rates during the bitcoin bubble were around 4.77 per second.
It's difficult to know for certain why bitcoin transaction sizes appear to be shrinking, but there could be a silver lining to this news.
A 2018 University of Oxford study found that approximately 44% of all bitcoin transactions involved illegal activity, such as money laundering. Oxford estimated criminals make about 36 million annual transactions annually worth about $72 billion.
In other words, criminal bitcoin transactions average about $2,000 per transaction in value.
Assuming the average retail user of bitcoin making purchases or cash transfers is averaging much lower than $2,000 per transaction, the falling average daily transaction value may simply be a reflection of regulatory crackdowns around the world discouraging criminal activity in bitcoin.
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