Glassnode: How Has the Landscape of Cryptocurrency Investors Shifted?

Original Title: A New Mindset

Original Source: Glassnode

Original Translation: Baishui, Golden Finance

Abstract

· Bitcoin has evolved into a global asset with high liquidity, available around the clock. This creates conditions for investors to speculate, trade, and express macroeconomic views when traditional markets are closed.

· Bitcoin continues to prove itself as an emerging store of value asset, with cumulative net inflows exceeding $850 billion. It also serves as a medium of exchange asset, processing nearly $9 billion in transactions daily.

· Several indicators of new demand remain high, but they are far below the peaks of previous cycles.

· The composition of digital asset investors is also changing, with a significant increase in more mature institutional investors in the Bitcoin space. This has led to a general decrease in drawdown magnitudes, with volatility compressing over time.

Test Ground

Since its inception in 2009, Bitcoin has evolved into a highly liquid global asset, remaining active for trading 24/7. Given that global events often occur outside traditional market trading hours, Bitcoin has become one of the few assets where investors can express views during weekends and similar times.

Over the weekend, Bitcoin experienced a sharp decline as market participants reacted to the Trump administration's tariffs on Mexico, Canada, and China. With other markets closed, Bitcoin and other digital assets saw a steep drop followed by a recovery:

· BTC's trading price fell from $104,000 to $93,000 (-10.5%) and then rebounded to $102,000.

· ETH's trading price fell from $34,000 to $25,000 (-26.5%) and then rebounded to $28,000.

· SOL's trading price fell from $236 to $184 (-22.0%) and then rebounded to $217.

Bitcoin is now playing an increasingly important role on the world stage, with nation-states like Bhutan engaging in large-scale mining operations, El Salvador pushing for Bitcoin as legal tender, and the U.S. government considering the potential of Bitcoin as a strategic reserve asset.

Bitcoin has recently surpassed the important psychological barrier of $100,000 for several weeks in a row, a feat many critics deemed impossible.

Despite traditional investors' increasing acceptance of Bitcoin, for many, Bitcoin remains a controversial and polarizing topic, often based on dubious claims of lacking intrinsic value or utility.

Nevertheless, Bitcoin has solidified its position as one of the world's largest assets, with a market capitalization of $2 trillion, ranking as the seventh-largest asset globally. It is worth noting that this places Bitcoin above silver ($1.8 trillion), Saudi Aramco ($1.8 trillion), and Meta ($1.7 trillion), making it increasingly hard to ignore.

As the asset's valuation and weight reach such a significant scale, its inertia also increases. As a result, Bitcoin now requires a significant influx of new capital to sustain its market capitalization growth. To explore this idea, we can utilize the realized cap metric, which measures the cumulative net inflow of capital into a digital asset.

If we take the cycle low point set in November 2022 as a reference, when the realized cap was $400 billion, Bitcoin has since absorbed approximately +$450 billion of additional capital inflows, more than doubling its realized cap.

This reflects that the total value stored in Bitcoin is about $850 billion, with each token's pricing based on its last on-chain transaction price.

While BTC is commonly seen as an emerging store of value asset, the Bitcoin network also serves as a decentralized rail for BTC as a medium of exchange. The combination of nodes and miners allows for cross-border settlement payments by any individual or entity without the need for interaction with a third-party intermediary.

When utilizing Glassnode's entity-adjusted heuristic approach to filter transactions, over the past 365 days, the Bitcoin network has processed an average of $8.7 billion per day, with a total value transferred in the past year reaching $3.2 trillion.

The actual settlement value and economic activity of the Bitcoin network provide empirical evidence that Bitcoin possesses both "value" and "utility," challenging critics' assumption that Bitcoin lacks both value and utility.

Relative Dominance

After determining the growing importance of Bitcoin as a macro asset, we can shift our focus internally and analyze its relative dominance within the broader digital asset ecosystem.

Since the FTX collapse in November 2022, Bitcoin's dominance has been on a continuous upward trend, rising from 38% to 59%. This indicates that in the digital asset space, Bitcoin's net rotation and value accumulation take precedence over other assets.

This may partly be attributed to the broader access provided by the U.S. spot ETF for institutional capital. As a scarce asset, Bitcoin's core narrative is also clearer, with many holding Bitcoin as a hedge against global fiat currency devaluation.

When comparing the market capitalizations of Bitcoin and various altcoins (excluding Ethereum and stablecoins), we can see that the valuation gap is continuously widening. Anchoring ourselves back to the low point of 2022, we can compare the growth in market capitalization.

· Bitcoin Market Cap: $363.0 billion > $1.93 trillion (5.3x)

· Altcoin Market Cap: $190.0 billion > $892.0 billion (4.7x)

While there is a difference in the valuation scale between Bitcoin and altcoins, the correlation between the two remains strong. This suggests that the reason for this difference is not the growth rate between the two but rather the significant disparity in capital entering Bitcoin versus the altcoin space.

Although Bitcoin continues to receive the majority of capital from investors, it can be expected that Bitcoin's dominance will continue to rise (the reversal of this indicator is a signal of capital rotating in the other direction).

Where is the New Demand?

With BTC price breaking the $100,000 barrier, it is expected that Bitcoin's exposure will increase significantly. We can assess this by evaluating the percentage of network wealth held by tokens bought just under 3 months ago. The chart below shows the changes in this metric over the 12 months following a new cyclical ATH.

While the new demand in this cycle is significant, the wealth held by 3-month-old tokens is much lower compared to previous cycles. This indicates that the scale of new demand inflow is not the same, appearing to be more sporadic and peak-oriented rather than sustained.

Interestingly, all previous cycles have ended approximately a year after the first ATH breakout, highlighting the atypical nature of our current cycle, which saw its first new ATH in March 2024.

If we separate out the transfer volume of small wallets (less than $10,000) and compare it to the peak levels in 2021, we can see a significant decline. Despite a substantial increase in overall settlement volume this cycle and a significant rise in Bitcoin's price, this trend persists.

This suggests that the new demand for BTC is primarily driven by large entities rather than small retail entities.

We can also utilize other datasets to support our argument. Despite many bullish factors surrounding the asset, search intensity has not reached the frenzied levels seen during the 2021 bull market.

Evolution of the Investor Base

While the structure of the Bitcoin protocol and consensus code is fundamentally fixed, the market's response to it is an evolving and dynamic process. The regulatory environment continues to change, and new financial instruments such as derivatives and ETF products continue to develop around it. As the Bitcoin ecosystem evolves, the composition of Bitcoin investors also continues to change, most notably in this cycle.

When comparing the balance changes of smaller entities (holding <10 BTC), we observe a noticeable shift in behavior patterns in recent years.

During the bull markets of 2013 and 2017, we could identify periods of significant token accumulation from these groups, often synonymous with "exuberant top buying." This pattern seems to have broken in this cycle, with smaller entities engaging in more intense accumulation during corrections and pullbacks, then transitioning to distribution as the market rebounds to new highs.

This suggests that even within those typically seen as retail investor groups, there exists a more mature and well-educated cohort of investors.

The launch of a US Spot Bitcoin ETF has also provided institutional investors with a new investment channel, offering them a regulated Bitcoin investment opportunity. This has facilitated potential institutional capital inflows, with the ETF seeing net inflows of over $40 billion and a total AUM surpassing $120 billion in the 12 months since its launch.

By delving into the IBIT Investor Capital Table (as described by analyst TXMC), we can clearly see signs of increasing institutional investor demand. This further demonstrates that Bitcoin is attracting a more mature investor base.

Controlled Downtrend

One of the many advantages of on-chain data is that it can help us analyze investor behavior during periods of stress, such as pullbacks and downturns.

When evaluating the actual loss magnitude locked in during a bull market, our current cycle remains the most conservative. The only significant event where Bitcoin holders suffered substantial losses was the yen carry trade unwinding on August 5th. Apart from this, the loss magnitude remains relatively small, indicating that the investor base is more patient, resilient, and less price-sensitive.

This is in stark contrast to the previous cycle structure, where the 2015-2018 period featured multiple minor sell-off periods. The 2019-2022 period has been more turbulent, experiencing several deep and severe sell-off events, such as the mid-2019 PlusToken unwinding, the March 2020 COVID-19 sell-off, and the mid-2021 large-scale miner migration.

Bitcoin's volatility regime is also in a state of flux, with the actual volatility at historic lows during the bull market. The actual volatility over a three-month rolling window in this cycle is typically below 50%, whereas in the previous two bull markets, the actual volatility often exceeded 80% to 100%.

This reduction in volatility, coupled with a relatively composed investor base, manifests in a more stable price structure. So far, the 2023-2025 cycle has been essentially a series of staircase-like price movements (rises followed by consolidation periods).

We have also seen more controlled retracement scenarios, with the current cycle experiencing the shallowest average retracement from local highs of all cycles to date.

Summary

Bitcoin continues to solidify its position as a global macro asset. It remains available for trading, allowing investors to express their market views at any time of the day, while its deep liquidity enables investors to execute large-scale transactions.

Addressing criticisms regarding Bitcoin's role as a store of value and medium of exchange, the network has attracted over $850 billion in net capital inflows and processes nearly $9 billion in transaction volume daily. These figures largely dispel doubts about these claims.

Recent regulatory changes in the digital asset ecosystem have prompted a shift in investor composition, leading to an increasing presence of mature institutional investors in the Bitcoin market. This cohort of investors, characterized by greater patience, resilience, and less price sensitivity, helps reduce drawdowns and lower volatility.

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