Glassnode: How has the composition of encryption asset investors changed?

Source: Glassnode; Compiled by: Baishui, Golden Finance

Summary

• Bitcoin has evolved into a global asset with high liquidity and can be used 24/7. This creates opportunities 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 accumulated net capital inflows exceeding 850 billion US dollars. It also serves as a medium of exchange asset, processing nearly 9 billion US dollars in transaction volume daily.
• The multiple indicators of new demand are still high, but they are far lower than the peak periods of the previous cycles.
• The composition of digital asset investors is also changing, with significantly more mature institutional investors in the Bitcoin field. This has led to a general decrease in drawdowns, with volatility compressing over time.

Test Field

Since its inception in 2009, Bitcoin has evolved into a highly liquid global asset, maintaining active trading around the clock. Given that global events often occur outside of traditional market trading hours, this makes Bitcoin one of the few assets that investors can express views on during weekends and other times.

Over the weekend, due to market participants' reaction to the Trump administration's tariffs on Mexico, Canada, and China, Bitcoin experienced a sharp decline. With other markets closed, Bitcoin and other digital assets experienced a sharp decline, followed by a rebound:

• The BTC trading price dropped from $104,000 to $93,000 (-10.5%), then rebounded to $102,000.
• The ETH transaction price dropped from $34,000 to $25,000 (-26.5%), and then rebounded to $28,000.
• SOL trading price dropped from $236 to $184 (-22.0%), and then rebounded to $217.

Bitcoin is playing an increasingly important role on the world stage, with ethnic countries such as Bhutan and Salvador engaging in large-scale mining operations, while the US government is considering the potential for Bitcoin to be used as a strategic reserve asset.

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

Although the acceptance of Bitcoin by traditional investors is increasing, for many people, Bitcoin is still a controversial and polarizing topic, often based on dubious claims of lack of intrinsic value or utility.

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

With the valuation and weight of assets reaching such a large scale, its inertia will also rise. The chain reaction is that ** Bitcoin now needs a large influx of new capital to achieve its market value's sustained growth. ** To explore this idea, we can use the realized market value indicator, which measures the cumulative net inflow of capital into digital assets.

If we take the cycle low set in November 2022 as a reference point, with a realized market value of 400 billion U.S. dollars at that time, then Bitcoin has absorbed approximately +450 billion U.S. dollars of additional capital inflow since then, more than doubling the realized market value.

This reflects a total value of about 850 billion US dollars in "storage" in Bitcoin, and the pricing of each token is based on its last on-chain transaction price.

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

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

The actual market value and economic scale of the Bitcoin network settlement provide empirical evidence that Bitcoin has both 'value' and 'utility', challenging the assumption of critics that Bitcoin has neither value nor utility.

Relative Dominance

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

Since the FTX crash in November 2022, Bitcoin's dominance has been continuously rising from 38% to 59%, indicating that in the digital asset field, Bitcoin's net rotation and value accumulation take precedence over other assets.

This may be partly due to the broader access to institutional capital provided by US spot ETFs. Bitcoin, as a scarce asset, also has a clearer core narrative, and many people hold bitcoin as a currency to hedge against the depreciation of global fiat currencies.

When we compare the market value of Bitcoin with various altcoins (excluding Ethereum and stablecoins), we can see that the valuation gap is continuously widening. Once again anchoring ourselves to the low point of 2022, we can compare the growth in market value.

• Bitcoin market cap: $363.0 billion > $1.93 trillion (5.3 times)
• Shanzhai coin market cap: 1900 billion US dollars > 8920 billion US dollars (4.7 times)

Although there are differences in the valuation scale of Bitcoin and altcoins, the correlation between the two is still very strong. This indicates that the reason for this difference is not the growth rate between the two, but the huge difference in the capital entering the Bitcoin field relative to the capital entering the altcoin field.

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

Where is the new demand?

As BTC price breaks the $100,000 mark, it is expected that the exposure of Bitcoin will increase significantly. We can assess this by evaluating the percentage of network wealth that tokens purchased less than 3 months ago represent. The chart below shows the changes in this indicator over the 12 months following the breakthrough of a new cyclical ATH.

Although the new demand in this cycle is meaningful, the wealth held by the 3-month-old token is much lower compared to the previous cycle. This indicates that the scale of new demand influx is not the same, it seems to be sudden and peak, rather than sustained.

Interestingly, all previous cycles have ended approximately one year after the first ATH breakthrough, highlighting the atypical nature of our current cycle, which reached a new ATH for the first time in March 2024.

If we separate out the transfer volume of small wallets (less than $10,000) and compare it with the highest level in 2021, we can see a significant decrease. Despite a significant increase in the overall settlement volume in this period and a significant rise in the price of Bitcoin, the situation remains the same.

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

We can also use other datasets to support our arguments. Despite the many favorable factors of this asset, search intensity has not reached the level of frenzy during the bull market in 2021.

Growing Investor Base

Although the structure and consensus code of the Bitcoin protocol are basically fixed, the market's reaction to it is a constantly evolving and dynamic process. Regulatory environments are constantly changing, and new financial instruments such as derivatives and ETF products continue to develop around it. As the Bitcoin environment develops, the composition of Bitcoin investors is also constantly changing, which is most evident in this cycle.

When comparing the changes in the balances of relatively small entities (holding <10 BTC retail investors), we noticed a significant change in behavioral patterns in recent years.

During the bull markets in 2013 and 2017, we can identify periods of significant token accumulation from these groups, which is often synonymous with 'exuberant top buying'. This pattern seems to break this cycle, with smaller entities accumulating more aggressively during corrections and pullbacks, then transitioning to distribution when the market rebounds to new highs.

This indicates that there are more mature and well-educated investors even among those who are typically seen as retail investors.

The launch of the US spot ETF Bitcoin tool also provides institutional investors with a new investment channel, offering them regulated Bitcoin investment opportunities. This has facilitated potential institutional capital inflows, with net inflows of over 40 billion US dollars and total assets under management exceeding 120 billion US dollars in the 12 months since its launch.

If we delve into the IBIT investor capital table (as described by analyst TXMC), we can clearly see signs of increasing demand from institutional investors. This further proves that Bitcoin is attracting an increasingly mature group of investors.

Controlled Downlink

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

When evaluating the actual extent of losses locked in during the bull market, our current period is still the most conservative. The only prominent event of significant losses suffered by Bitcoin holders was the yen arbitrage liquidation on August 5th. In addition, the extent of losses is still relatively small, indicating that the investor community is more patient, more resilient, and less sensitive to price.

This is very different from the previous cyclical structure. The characteristics of the 2015-2018 period were multiple local sell-off periods. The period from 2019 to 2022 was more turbulent, experiencing several deep and severe sell-off events, such as the mid-2019 PlusToken liquidation, the COVID-19 sell-off in March 2020, and the large-scale miner migration in mid-2021.

The volatility of Bitcoin is also changing, with the actual volatility at historically low levels during the bull market. The actual volatility in the 3-month rolling window of this cycle is usually below 50%, while in the previous two bull markets, the actual volatility often exceeded 80% to 100%.

This reduced volatility, combined with a relatively calm investor base, is reflected in a more stable price structure. So far, the 2023-2025 period is basically a series of stair-step price trends (consolidation period after an increase).

We have also seen more controlled pullbacks, with the current cycle experiencing the shallowest average pullback since the local high points of all previous cycles.

Summary

Bitcoin continues to solidify its position as a global macro asset. It is always 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.

In response to criticism of Bitcoin as a store of value and medium of exchange, the network has attracted a net capital inflow of over $850 billion and processes nearly $90 billion in transactions daily. These figures largely dispel doubts about these claims.

Recent regulatory changes in the digital asset ecosystem have prompted a shift in investor composition, resulting in an increasing presence of institutional investors in the Bitcoin market. This group of investors, who are more patient, resilient, and less sensitive to price, helps to reduce drawdowns and lower volatility.