On- and Off-Chain Demand and Supply Drivers of Bitcoin Price

2026-01-01

Economics

AI Summary

This study addresses a critical gap in the literature by systematically integrating daily on-chain and off-chain supply and demand data from 2019 to 2024 to examine their causal effects on Bitcoin prices, using an autoregressive distributed lag (ARDL) model. While existing research predominantly focuses on on-chain transactions, this work highlights that off-chain activity—accounting for approximately three-quarters of all Bitcoin transactions—plays a pivotal role in price dynamics. The findings reveal that off-chain demand exerts a significant long-run positive effect on Bitcoin prices, whereas only on-chain demand demonstrates long-term explanatory power among on-chain variables. Although whale transactions exhibit notable short-term impacts, their influence dissipates over the long run. These results uncover a “dual-driver” mechanism underlying Bitcoin price formation, offering a novel perspective on the pricing of crypto-assets.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Data Mining & Knowledge Management: Representing, Reasoning, and Using Provenance, Trust
• Multiagent Systems: Mechanism Design

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Security and Privacy: Cryptocurrency and smart contracts
• Web Mining and Content Analysis: Community question answering

Abstract

Abstract Around three-quarters of Bitcoin transactions occur off-chain. While most empirical studies focus exclusively on on-chain transactions, only few papers analyse off-chain transactions. The empirical evidence of Bitcoin market considering both types of trading strategies remains limited. This paper is one of the first to present an empirical analysis of both on- and off-chain demand and supply-side factors and their short- and long-run relationship with the Bitcoin price. Employing the ARDL approach with daily data from 2019 to 2024, we demonstrate a differentiated contribution of on-chain and off-chain drivers to the Bitcoin price. In the long-run, off-chain demand pressures have a significant relationship with the Bitcoin price. In the short-run, both off-chain demand and supply factors are statistically significantly related to the Bitcoin price. The relationship between blockchain transactions and the Bitcoin price is also present, albeit likely operating through a different channel than off-chain trades. These findings confirm the dual nature of the Bitcoin market, in which price movements are related to both market fundamentals and speculative considerations captured by on- and off-chain trades, respectively.

Problem

• Bitcoin price
• on-chain transactions
• off-chain transactions
• demand and supply drivers
• cryptocurrency market

Innovation

• on-chain
• off-chain
• Bitcoin price dynamics
• ARDL model
• demand and supply drivers