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All is not well in the crypto heartland. Bitcoin is experiencing an anomaly where a decline in active addresses is perversely aligning with increased network congestion. And now the ensuing volatility quakes seem to have hit Binance hard, with the world's largest crypto exchange recording its largest-ever Bitcoin outflow over the past few hours.
For those who might be unaware, the Bitcoin Ordinals Protocol recently made waves when it allowed for the creation of NFTs on the Bitcoin Network. Each Bitcoin can be subdivided into 100 million units called Satoshis (or Sats for short). The protocol allowed Bitcoin node operators to inscribe each Satoshi with data, including NFT-enabling smart contracts. This then gave rise to the Ordinals, which are NFTs that can be minted directly onto the Bitcoin blockchain.
https://twitter.com/kamikaz_ETH/status/1655528502828097536
Recently, a new innovation has taken the Bitcoin ecosystem by storm. The BRC-20 is an experimental token standard that allows for the creation of fungible tokens using the Bitcoin Ordinals Protocol, where inscriptions of JSON data are used to deploy token contracts as well as mint and transfer the tokens.
https://twitter.com/JamesonMah/status/1654138848702775297
Do note that BRC-20 tokens, unlike their ERC-20 counterparts in the Ethereum ecosystem, do not support smart contracts, thereby precluding much of the DeFi space from functions such as liquidity provision. Basically, the BRC-20 contract is etched onto the Satoshis and is not programable, which means that it cannot automatically execute actions based on a prior set of conditions. On the other hand, since BRC-20 tokens can be minted and traded using Bitcoin wallets, they remain easily accessible to the crypto community.
Majority of tx's are currently just spamming the block space.
They're all 152.5vb in size transacting precisely 0.00000546 btc.
DDOS test? pic.twitter.com/l9yDTnkuL9
— Death Cab to QE (@DeathCabToQE) May 7, 2023
In recent days, BRC-20 meme tokens such as Pepe attracted quite a lot of interest. Unfortunately, this increased general interest in the BRC-20 ecosystem also attracted a wave of spam transactions.
This is somewhat disturbing:#Bitcoin active addresses have been falling despite high network congestion implying that the high level of transaction count does not reflect genuine network activity.
Users are transacting less due to high fees... pic.twitter.com/O3f8fjC9uZ
— André Dragosch | Bitcoin & Macro ⚡ (@Andre_Dragosch) May 8, 2023
As a result, despite a fall in active addresses, the Bitcoin network congestion and the attendant fees only increased, leading many to conclude that the network was facing "inorganic" activity, which then gave rise to heightened DDoS attack fears.
The Deutsche Digital Research noted in a recent report:
"There has been an increase in so-called "dust" transactions where transaction fees paid are more than 3 times larger than the value transacted which do not make sense from an economic point of view. This has led some observers to assume that a hostile actor might perform a Distributed-Denial-of-Service (DDOS) attack on the Bitcoin network, hence the negative price reaction. The negative price reaction was reinforced by the fact that exchange behemoth Binance halted Bitcoin withdrawals twice in the last 24 hours."
Meanwhile, Binance has halted withdrawals over three times in the past few hours. Moreover, the world's largest crypto exchange recorded its biggest-ever outflow of 162,000 BTC, worth around $4.6 billion.
https://twitter.com/WhaleWire/status/1655396244678647809
Do note that we flagged another anomaly related to Binance around two weeks back when around 16,000 BTC were sold in the Binance spot market. Given the unusual size of that liquidation, we had noted at the time that such aberrant transactions often precede major "bad news" events.
We’re aware that some data are showing a large volume of outflows from #Binance.
This ‘outflow’ are actually movements between Binance hot and cold wallets due to the BTC address adjustments.
— Binance (@binance) May 8, 2023
Binance has now eased its withdrawal restrictions. Moreover, in an official tweet, the exchange claimed that the abnormal outflow was a result of the movement between "Binance hot and cold wallets due to the BTC address adjustments." Nonetheless, some Twitter users have taken umbrage with the fact that Binance decided to conduct this transfer at a time of heightened sensitivity, thereby spreading panic throughout the crypto sphere.
SHARES OF MOST CRYPTO COS DOWN PREMARKET AS BINANCE HALTED BITCOIN WITHDRAWALS FOR SEVERAL HOURS CITING HEAVY VOLUMES
COINBASE GLOBAL DOWN 4.3%, MARATHON DIGITAL DOWN 6.8% PREMARKET
RIOT PLATFORMS FALLS 6.9% PREMARKET, BIT DIGITAL DOWN 8.5%
— 🅰🅻🅴🆂🆂🅸🅾 (@AlessioUrban) May 8, 2023
It is hardly a surprise, therefore, that crypto-exposed stocks are in the red in early pre-market trading today.
Note:
The post has been updated with additional comments from Binance.
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
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