Underutilized Bitcoin Mempool Signals Caution Amongst Traders
• The bitcoin (BTC) mempool is currently underutilized with only less than 10% of the 300MB mempool size being used.
• This divergence from the current trending price action of BTC trading above $21,000 is a concern for traders who might be looking for leads from on-chain activities.
• There is a correlation between the spot price of BTC and the size of the mempool, with increasing demand for the currency leading to more on-chain transactions and congestion.
The Bitcoin (BTC) mempool is an area of the network that stores pending and unconfirmed transactions. It is composed of each node’s mempool, with no global mempool. The mempool is capped at 300MB, and whenever the total number of transactions exceeds this limit, the mempool is said to be full, resulting in delays in processing. On Jan. 20, the BTC mempool is currently underutilized, with only less than 10% of the 300MB mempool size being used, indicating a divergence from the current trending price action of BTC trading above $21,000. This is a concern for traders who might be looking for leads from on-chain activities.
Over the years, there has been a correlation between the spot price of BTC and the size of the mempool. Whenever markets are trending, the network tends to attract more users, drawing more on-chain transactions and increasing the size of the mempool, thus leading to congestion. In mid-January 2023, rising BTC prices have not been reflected in the mempool size, which could suggest that some traders are observing the situation cautiously.
The mempool size and the spot price of BTC are connected as the demand for bitcoin may rise when prices trend higher, pointing to more activity. This means that if the mempool is full, the network fees increase, impacting demand.
The underutilization of the BTC mempool could be an indicator of traders’ cautiousness, as prices remain high and the market is yet to show a clear direction. It is important for traders to keep an eye on the mempool size as it can provide information about the current demand for bitcoin. This could be a useful tool for traders to monitor the activity of the network and to get an idea of the current market sentiment.