Foreign media commentaries suggest that after the launch of U.S. spot Bitcoin ETFs, part of the capital flow in the crypto market is no longer fully reflected on-chain. Investors gain exposure to Bitcoin through brokerage accounts, and when capital enters the market, it may not be accompanied by an increase in address growth or higher on-chain transaction volumes, altering the interpretive power of traditional on-chain metrics.
ETF funds are not necessarily on-chain.
The article states that over the past decade, metrics such as active addresses and on-chain transaction volumes have been used to gauge market sentiment. However, after the launch of spot ETFs, the underlying Bitcoin is typically held by custodial institutions, and investors no longer need to create wallets or interact directly with the blockchain.
This means that even as ETFs continue to attract inflows, the price of Bitcoin may rise without a corresponding increase in on-chain activity. The article cites an example: in early 2024, Bitcoin briefly surpassed $70,000, yet the number of active addresses remained significantly below the 2021 peak.
Ethereum activity shifts to Layer 2
The article also notes that on-chain data distortion does not stem solely from ETFs. As Layer 2 networks such as Arbitrum, Optimism, Base, and zkSync expand, an increasing volume of transactions are being processed outside the Ethereum mainnet.
These networks bundle large volumes of transactions before submitting them to the mainnet for settlement, so viewing only Ethereum Layer 1 transaction counts can lead to the mistaken conclusion that usage has declined. The article argues that since 2023, while Ethereum mainnet transaction numbers appear to have dropped, much user activity has actually shifted to Layer 2, where transaction volumes have at times exceeded those of the mainnet.
Change in the meaning of exchange inflows
The article suggests that exchange inflows were traditionally viewed as a bearish signal, as users transferring tokens to exchanges often indicate an intention to sell. Large inflows in 2018 and 2021 occurred near market peaks.
However, as institutional participants increase, this assumption is becoming less straightforward. The article states that exchanges today are no longer just venues for buying and selling—they also provide functions such as custody, collateral management, and portfolio rebalancing. Funds transferred to exchanges may not necessarily be intended for immediate sale but could instead be used for derivatives margin or asset allocation.
A single indicator is more prone to misinterpretation
The article argues that traditional metrics have not become obsolete; rather, they were originally based on a market structure dominated by retail investors, self-custody, and frequent on-chain interactions. Today, ETFs, institutional custodians, and Layer 2 networks have transformed how funds and transactions appear on-chain.
Under these circumstances, a single metric is more prone to misinterpretation. The article notes that total value locked (TVL), whale movements, and stablecoin supply and exchange balances can still serve as supplementary indicators to assess whether liquidity is entering on-chain applications, whether funds are remaining off-chain, and whether risk appetite has shifted.