Bitcoin Dominance Soars to 56%, Long-Term Holders Remain Resolute

Bitcoin (BTC) continues to expand its dominance in the cryptocurrency market, now commanding a staggering 56% of the total market capitalization, according to Glassnode Insights. The data reveals that long-term holders remain steadfast in their conviction, contributing to significant accumulation pressure beneath the surface.

Market Overview

Since the cycle low established in November 2022, capital has increasingly accrued towards major assets in the digital asset risk curve. Bitcoin's dominance has surged from 38% in November 2022 to 56% today. Ethereum (ETH), the second-largest asset, has seen a slight decline in dominance, dropping 1.5% over the past two years. Meanwhile, stablecoins and the broader altcoin sector have experienced more pronounced declines of 9.9% and 5.9%, respectively.

This shift in market dynamics is further highlighted by the net capital change across major assets. Bitcoin, Ethereum, and stablecoins are all exhibiting a net positive capital inflow. Despite the general market contraction since the March all-time high (ATH), only 34% of trading days have seen a larger 30-day USD inflow.

Long-Term Holders

Long-term holders have been locking in a consistent $138 million in profit per day amidst recent market turbulence. This sell-side pressure is indicative of the daily capital inflows required to absorb supply and stabilize prices. Despite choppy market conditions, prices have remained relatively flat over the last few months, suggesting a form of equilibrium is being reached.

The Realized Profit/Loss Ratio for long-term holders remains elevated but is experiencing a substantial decline from its peak. This indicates that profit-taking activities by long-term investors are cooling off. During the March 2024 ATH, this metric reached levels similar to prior market tops, suggesting a potential for future uptrend in prices.

A Psychological Correlation

Short-term holders, on the other hand, are experiencing significant unrealized financial stress. The Short-Term Holder Market Value to Realized Value (STH-MVRV) ratio has contracted below the equilibrium value of 1.0 in recent weeks, indicating that the average new investor is now holding an unrealized loss. Sustained periods where the STH-MVRV trades below 1.0 can lead to increased investor panic and potentially severe bearish market trends.

With unrealized losses mounting, the expectation of eventual investor capitulation grows. Such events are characterized by large losses being locked in through spent coins. The Short-Term Holder Spent Output Profit Ratio (STH-SOPR) is also trading below 1.0, indicating realized loss-taking activities by new investors.

Navigating Investor Cycles

When evaluating the Relative Unrealized Loss metric for new investors, it is evident that the magnitude of unrealized financial stress remains relatively low compared to historical capitulation events. However, realized losses have been trickling higher, highlighting a moderate overreaction in the market.

During cyclical price lows, the magnitude of realized and unrealized loss tends to spike to between 10% and 60% of total short-term holder holdings. Currently, the magnitude of these losses remains relatively small compared to previous major bottom-forming events. This suggests that the hit to investor sentiment may not be as severe as it appears at face value.

Summary and Conclusions

Despite the prevailing uncertainty among market investors, capital continues to flow towards Bitcoin, leading to a significant expansion in its dominance. Long-term holders remain resolute, with a clear preference to hold and acquire more coins. Conversely, short-term holders have borne the majority of recent losses, though the degree of locked-in losses suggests a potential overreaction to the market downturn.

Disclaimer: This report does not provide any investment advice. All data is provided for informational and educational purposes only. No investment decision should be based on the information provided here, and you are solely responsible for your own investment decisions.

Exchange balances presented are derived from Glassnode’s comprehensive database of address labels, amassed through both officially published exchange information and proprietary clustering algorithms. While we strive to ensure accuracy, these figures might not always encapsulate the entirety of an exchange’s reserves, particularly when exchanges refrain from disclosing their official addresses. Users should exercise caution and discretion when utilizing these metrics. Glassnode shall not be held responsible for any discrepancies or potential inaccuracies. Glassnode Insights.