Original title: "What to do if you lose money?"

Written by: UkuriaOC, CryptoVizArt

Proofreading: Akechi, Anna

As the leader in the digital asset field, Bitcoin is still consolidating its superior position, and its market value currently accounts for 56% of the total market value. Not only that, long-term Bitcoin holders continue to hold Bitcoin unwaveringly, which brings greater appreciation potential to the market.

summary

• After hitting lows since November 2022, Bitcoin has been consolidating its dominance in the digital asset space, with its market capitalization now reaching 56% of the total market value.

• Despite the wild price swings, the conviction of long-term holders remains steadfast, and they continue to accumulate and hold Bitcoin.

• During the recent price downturn, most of the losses were borne by short-term holders. However, the extent of the locked losses suggests that they may have overreacted to the price drop.

Market Overview

Bitcoin’s Leading Position

Since the low point in November 2022, capital has continued to accumulate towards Bitcoin, the leader in the digital asset field. Its market capitalization has risen from 38% in November 2022 to a staggering 56% today.

Ethereum, the second-largest asset in the ecosystem, saw its market cap fall by 1.5%, remaining relatively flat over the past two years. Stablecoins and other digital assets saw their market caps fall by 9.9% and 5.9%, respectively.

• Bitcoin share: 38.7% (November 2022) —> 56.2% (current)

• Ethereum share: 16.8% —> 15.2%

• Stablecoin share: 17.3% —> 7.4%

• Other digital assets: 27.2% —> 21.3%

Figure 1: Proportion of major digital asset categories

Market capital flows

Although the market has generally shrunk since its all-time high in March - only 34% of trading days have seen significant 30-day USD inflows. But if we only look at net capital changes, we can see that Bitcoin, Ethereum and stablecoins still show net positive capital inflows.

Figure 2: Market capitalization changes

Next, we will focus on the asset buyer vs seller indicator, which aims to identify changes in capital based on the lateral direction of inflows on exchanges:

• Values ​​close to zero indicate a largely balanced market, where buyer inflows are equal to seller BTC+ETH inflows.

• Positive values ​​indicate a net buy-side market, where buyer inflows of stablecoins exceed seller inflows of BTC+ETH.

• Negative values ​​indicate a net sell-side market, where buyer inflows of stablecoins are smaller than seller inflows of BTC+ETH.

Since the price of the coin broke through the new high in March 2024, the selling pressure has gradually subsided, and we are currently observing the first positive capital inflow day since June 2023 ($91.8 million/day).

Figure 3: Buyer/seller net asset flows of major assets

Long-term holders vs. short-term holders

Solid performance for long-term holders

Even in the recent turbulent market environment, long-term holders have been able to lock in $138 million in daily profits. Since there is a buyer and a seller for each transaction, the trading pairs generated by price changes can solve the problem of supply and demand imbalance.

From another perspective, even though the selling pressure from sellers to the market is as high as about $138 million per day, the price of the currency remains generally flat, indicating that capital is still flowing in continuously. Although market conditions are volatile, prices have remained stable in the past few months, indicating that market supply and demand are tending to balance.

Figure 4: Realized P&L for long term holders

The actual profit and loss ratio of long-term holders is the indicator we use to assess their cyclical behavior. We note that although the indicator has dropped significantly from its peak, it is still at a high level. This shows that long-term investors are slowing down the pace of selling Bitcoin and gradually turning to holding.

It is noteworthy that during the all-time high in prices in March 2024, the indicator reached a similar height to the previous market high. In the 2013 and 2021 cycles, prices fell to similar levels as the current ones before starting to rise again. It is noteworthy that in 2017-18, it fell and never recovered as the market entered a bear market.

Figure 5: Realized profit and loss ratio for long-term holders

On the other hand, long-term holders SOPR have made an average profit of 75% for each Bitcoin they hold, and the indicator is still at a high level.

Figure 6: SOPR of long-term holders (14-day moving average)

Looking at the spending binary indicator for long-term holders, we can also see that their spending has slowed down.

The supply from long-term holders is currently increasing rapidly. Its 155-day threshold is close to the historical high in March, which shows that even after the price of Bitcoin broke through the historical high, many long-term holders are still firmly holding. This highlights that the long-term holding behavior of Bitcoin is significantly greater than the selling behavior.

Figure 7: Binary indicator of long-term holders’ spending (7-day moving average)

Financial pressure on short-term holders

In stark contrast to long-term holders, short-term holders have been under great financial pressure recently. Their MVRV (30-day moving average) has fallen below 1.0, indicating that new investors are currently losing money. This situation may exacerbate their panic and trigger market volatility.

Specific analysis of short-term holders

Double Verification of MVRV and SOPR

Short-term investors have been under significant financial pressure in the Bitcoin market recently, as can be seen through the short-term holder MVRV (30-day moving average) indicator, which has recently dropped below 1.0, meaning new investors are currently losing money.

Although short-term floating losses are common during bull markets, if MVRV continues to be below 1.0, it may exacerbate panic among short-term investors and trigger bear market risks.

Figure 8: Short-term investor MVRV (30-day moving average)

At the same time, the SOPR (Expenditure Output Ratio) of short-term investors is also below 1.0, further confirming that new investors are facing large losses and the market has reached a price level below their psychological bottom line. This may cause investors to lose confidence and eventually choose to sell at a loss.

Figure 9: Short-term investor SOPR (30-day moving average)

Unrealized Losses vs. Realized Losses

By comparing the unrealized losses of short-term holders with their realized losses, we believe that they may be slightly overreacting to the current market.

The following chart, comparing the cost basis of new investors to the average cost basis of all investors, gives us a glimpse into the extent of this reaction.

However, we are currently seeing only minor deviations between our spending and holding cost basis, which leads us to believe that even if the market falls below $50,000, the market’s overreaction will be manageable.

Figure 10: New Investor Confidence Curve

While unrealized losses are relatively high, they are still relatively manageable compared to historical capitulation events, which means that while investor sentiment may be hit, the market as a whole is still in a relatively stable state.

Figure 11: Short-term holders currently have unrealized losses

Figure 12: Realized losses of short-term holders after entity adjustment

By analyzing the cumulative 90-day realized and average unrealized losses of short-term holders, we are able to see the correlation.

During the price troughs of the cycle, the total realized and unrealized losses of short-term holders often soared to 10% to 60% of their assets. However, compared with previous market bottoms, their unrealized and realized losses are still relatively small.

We can draw a parallel between the current and 2016-2017 cycles, when the indicator was below 10%.

From this, we can say that the current price action may not be as severe a blow to investor sentiment as it might appear at first glance.

Figure 13: Realized and unrealized losses of short-term investors (90 days)

Investor Psychology and Market Reactions

The fragility of investor psychology

New investors tend to overreact more easily when faced with market fluctuations. This reaction not only affects their investment decisions, but can also cause a chain reaction on the entire market - so this reaction is a key feature of the market, and investors' overreactions can lead to excessive profits/losses when the turning point comes, and push the market to form local and macro tops/bottoms.

Therefore, understanding and responding to investor psychology has become one of the key factors for market stability.

The complexity of market reactions

Market reactions are not only affected by investor psychology, but also by a variety of macroeconomic and policy factors. In the current market environment, we need to pay close attention to the changes in these factors in order to more accurately predict market trends and formulate corresponding investment strategies.

Summarize

As uncertainty prevails among market investors and capital flows converge along the risk curve, Bitcoin’s dominance has increased significantly, and it now accounts for 56% of the total digital asset market capitalization.

Despite the volatile price action, long-term holders remain resolute and their determination to continue to accumulate Bitcoin is evident, while short-term holders have borne the vast majority of losses in the recent downturn, but they are overreacting to the market - the real situation may not actually be as bad as they think.