Source: Glassnode; Translated by: Baishui, Golden Finance
summary
Since hitting a cycle low in November 2022, Bitcoin’s dominance has continued to climb and now accounts for 56% of the total cryptocurrency market capitalization.
Despite the wild price swings, the conviction of long-term holders remains unwavering, with a clear tendency to accumulate and hold tokens.
Short-term holders have absorbed most of the losses during the recent downturn. However, the extent of the losses locked in suggests they may have overreacted to the event.
Market Overview
Capital continues to accumulate towards the major asset end of the digital asset risk curve since hitting a cycle low in November 2022. Bitcoin’s dominance has risen from 38% in November 2022 to 56% of the entire digital asset market today.
Ethereum’s dominance, the second-largest asset in the ecosystem, fell 1.5%, remaining relatively flat over the past two years. Stablecoins and the broader altcoin space experienced more pronounced declines of 9.9% and 5.9%, respectively.
Bitcoin Dominance: 38.7% (November 2022) —> 56.2% (Current) (red)
Ethereum dominance 16.8% —> 15.2% (blue)
Stablecoin dominance 17.3% —> 7.4% (green)
Altcoin dominance 27.2% —> 21.3% (purple)
However, when we assess net capital changes across major assets, Bitcoin, Ethereum, and stablecoins all saw net positive capital inflows. Despite the general market decline since the all-time highs in March, only 34% of trading days saw large 30-day USD inflows.
Next, we can utilize the major asset buyers and sellers indicator, which seeks to identify the shift of capital based on the preference of exchange inflows. This can be thought of in the following framework:
Values close to zero suggest a neutral regime, where buyer inflows are equal to BTC+ETH seller inflows.
Positive values indicate a net buyer regime, where stablecoin buyer inflows exceed BTC+ETH seller inflows. (Green)
Negative values indicate a net seller mechanism, where stablecoin buyer inflows are less than BTC+ETH seller inflows. (red)
Since setting a new ATH in March 2024, sell-side pressure has receded and is currently recording its first positive data point since June 2023 ($91.8 million/day).
Long-term holders
In the recent turbulent market environment, long-term holders have locked in $138 million in steady profits every day. Each transaction matches buyers and sellers, solving the supply and demand imbalance through price changes.
Therefore, we can infer that the pressure of about $138 million per day from LTH sellers indicates the need to absorb supply and keep prices stable in order to receive daily capital inflows. While market conditions have been volatile, prices have generally been flat over the past few months, suggesting that some kind of balance is being reached.
The actual profit/loss ratio of long-term holders is a metric we can use to assess the cyclical behavior of this group. We note that although this metric has fallen significantly from its peak, it is still at a high level. This suggests that long-term investors are cooling down their profit-taking activities.
Notably, during the March 2024 ATH, the indicator reached a similar height to the previous market high. In both the 2013 and 2021 cycles, the indicator declined to similar levels before resuming its upward price trend. However, in 2017-18, the decline was one-way as the market entered a loss-dominated bear market.
Looking at the long-term holder SOPR perspective, we can see that the average profit on tokens locked is +75%, and LTH-SOPR is still high at this time.
Using our LTH binary spending indicator, we can see the above slowdown in spending by long-term holders.
LTH supply is currently increasing rapidly. When we consider that the 155-day threshold of LTH status is close to the March ATH, this shows that the supply acquired during the ATH run-up remains held. This highlights that holding behavior is clearly outstripping spending behavior.
Psychological relevance
Turning to the opposite group, short-term holders, we can measure the intensity of unrealized financial stress experienced by recent buyers. We can observe this dynamic using the STH-MVRV ratio indicator and apply a 30-day average.
STH-MVRV recently contracted below its equilibrium value of 1.0, suggesting that the average new investor is now holding unrealized losses.
Brief periods of unrealized loss pressure are common during bull markets. However, periods where STH-MVRV is trading below 1.0 for a sustained period may lead to a higher probability of investor panic and signal a more severe bearish trend.
As unrealized losses mount, so too does the expectation that investors will eventually sell off. Such events are characterized by locking in significant losses through the spending of tokens.
When STH-SOPR trades below 1.0, periods of high losses realized by new investors in the market can be seen.
From this perspective, we can also see that STH-SOPR is trading below 1.0, indicating some level of loss activity from new investors. This further suggests that the market is at a decision point, with prices just below STH’s comfort point.
Despite the correlation between unrealized and realized activity, new investors may overreact by holding relatively high unrealized profits (or losses) in their portfolios. This overreaction is a key feature of the market, with investors’ emotional reactions causing them to realize excessive profits (or losses) at inflection points, forming local and macro tops (or bottoms).
The chart below compares the outlay cost basis of new investors who decided to trade with the average cost basis of all investors who are still holding. The deviation between these two metrics can provide insight into the degree of potential overreaction.
The bull market correction we are seeing in the current cycle has only experienced a slight deviation between the expense and holding cost basis. From this, it can be argued that a modest overreaction may have occurred as the market fell below $50,000.
Navigating the investor cycle
In the previous section, we used the MVRV and SOPR indicators, which take into account the overall profit and loss of investors. This section will only analyze tokens that are held and traded at a loss.
By assessing the relative unrealized loss metric of new investors, we can directly measure the unrealized financial stress borne by new investors.
Currently, the magnitude of unrealized losses relative to STH’s market cap is still relatively low compared to historical sell-off events. The magnitude of losses held by the market can be said to be similar to previous bull market corrections.
However, when we compare the accumulation of unrealized losses to the losses locked in tokens (realized losses), we can see that this correlation diverges. Realized losses are significantly higher, highlighting the modest overreaction we described above.
By evaluating STH’s cumulative 90-day realized losses and average unrealized losses, we can visually highlight the convergence and correlation between these two metrics.
During cyclical price lows, the magnitude of realized and unrealized losses tends to spike between 10% and 60% of STH's total holdings. By this measure, the magnitude of unrealized and realized losses is still relatively small compared to prior major bottom formation events.
A constructive analogy is the similarity between the current structure and the 2016-2017 cycle, where the described relative indicators were below the upper limit of consensus of about 10%.
From this, we can say that the blow to investor sentiment may not be as severe as it appears.
Summarize
As uncertainty prevails among market investors, capital continues to flow along the risk curve, leading to a significant expansion in Bitcoin’s dominance, with the leading asset now accounting for 56% of total market capitalization.
Despite the volatile price action, long-term holders remain resolute, with a clear preference for holding and buying tokens. On the other hand, short-term holders have borne the vast majority of losses in the recent downturn. Nevertheless, the extent of locked-in losses suggests that they may have overreacted to the event.
