Glassnode: How is the composition of crypto asset investors changing?

Source: Glassnode; Compiled by Baishui, Golden Finance

Abstract

• Bitcoin has developed into a global asset with extremely high liquidity and available 24/7. 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 capital inflows exceeding $850 billion. It also serves as a medium of exchange asset, processing nearly $9 billion in trading volume every day.

• Multiple indicators of new demand remain high, but they are well 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 resulted in generally lower drawdowns and compressed volatility over time.

Testing Ground

Since its inception in 2009, Bitcoin has grown into a highly liquid global asset that is actively traded 24/7. Given that global events often occur outside of traditional market trading hours, this makes Bitcoin one of the few assets where investors can express their views during times such as weekends.

Bitcoin experienced a sharp drop over the weekend as market participants reacted to the Trump administration's imposition of tariffs on Mexico, Canada and China. As other markets shut down, Bitcoin and other digital assets experienced a sharp drop before recovering: BTC traded at $104K down to $93K (-10.5%) before recovering to $102K.

Bitcoin is now playing an increasingly important role on the world stage, with nation-states such as the Kingdom of Bhutan conducting large-scale mining operations, El Salvador pushing for Bitcoin to become legal tender, and the US government considering the potential of Bitcoin as a strategic reserve asset.

Bitcoin has now been breaking through the psychologically important $100,000 mark for several weeks in a row, a feat many critics considered impossible.

While Bitcoin acceptance is growing among traditional investors, it remains a controversial and polarizing topic for many, often based on dubious claims of a lack of intrinsic value or utility.

Despite this, Bitcoin has solidified its position as one of the world’s largest assets, with a market cap of $2 trillion, ranking as the world’s seventh-largest asset. Notably, this puts Bitcoin above Silver ($1.8 trillion), Saudi Aramco ($1.8 trillion), and Meta ($1.7 trillion), making it increasingly difficult to ignore.

As the valuation and weight of assets reach such a large scale, their inertia will also increase. The knock-on effect is that Bitcoin now requires a massive influx of new capital to achieve sustained growth in its market capitalization. To explore this idea, we can utilize the realized market cap metric, which measures the cumulative net inflow of capital into digital assets.

If we use the cycle low set in November 2022 as a benchmark, when realized market cap was $400 billion, Bitcoin has since absorbed approximately +$450 billion in additional capital inflows, more than double the realized market cap.

This reflects the total value “stored” in Bitcoin of approximately $850 billion, with each coin priced at the price it was last traded on-chain.

While BTC is often viewed as an emerging store-of-value asset, the Bitcoin network is also capable of serving as a decentralized rail for BTC as a medium of exchange. The combination of nodes and miners allows any person or entity to settle payments across borders without the interaction of third-party intermediaries.

When filtering transactions using Glassnode’s entity-adjusted heuristics, the Bitcoin network processed an average of $8.7 billion per day over the past 365 days, with a total value of $3.2 trillion transferred over the past year.

The actual market capitalization and economic volume settled on the Bitcoin network provide empirical evidence that Bitcoin has both "value" and "utility," challenging critics' assumption that Bitcoin has neither value nor utility.

Relative Dominance

Having established Bitcoin’s growing importance as a macro asset, we can turn our focus inward and analyze its dominance relative to the broader digital asset ecosystem.

Since the FTX crash in November 2022, Bitcoin’s dominance has been on a sustained upward trend, rising from 38% to 59%. This suggests that within the digital asset space, Bitcoin’s net rotation and value accumulation takes precedence over other assets.

This may be partly due to the wider access that US cash ETFs provide to institutional capital. Bitcoin also has a clearer core narrative as a scarce asset, with many people holding Bitcoin as a hedge against the devaluation of global fiat currencies.

When we compare the market capitalization of Bitcoin and various altcoins (excluding Ethereum and stablecoins), we can see that the valuation gap is widening. Again anchoring ourselves at the 2022 low, we can compare the growth in market capitalization.

• Bitcoin market capitalization: $363 billion > $1.93 trillion (5.3 times)

• Altcoin market capitalization: $190 billion > $892 billion (4.7 times)

Although there is a difference in the valuation scale of Bitcoin and altcoins, the correlation between the two remains strong. This suggests that the reason for the difference is not the growth rate between the two, but rather a huge difference in capital entering Bitcoin relative to the capital entering the altcoin space.

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

Where are the new demands?

With BTC price crossing the $100,000 mark, people expect Bitcoin exposure to increase significantly. We can assess this by evaluating what percentage of network wealth is held by tokens purchased less than 3 months ago. The chart below plots how this indicator changes over the 12 months following a breakout to a new cyclical ATH.

While the new demand for this cycle is meaningful, the wealth held by 3 month old tokens is much lower compared to previous cycles. This suggests that the influx of new demand is not of equal size and appears to occur in bursts and peaks rather than being sustained.

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

If we separate out the transfer volume of small wallets (less than $10,000), we can see a significant drop compared to the highest levels in 2021. This is despite a significant increase in overall settlement volume and a notable rise in Bitcoin prices during this cycle.

This suggests that new demand for BTC is being led by large entities rather than small retail entities. We can also use other datasets to support our arguments. Despite many favorable factors for the asset, search intensity has yet to reach the frenetic levels seen during the 2021 bull run.

Evolving Investor Base

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

When comparing balance changes of smaller entities (retail investors holding <10 BTC), we notice a clear shift in behavior patterns in recent years.

During the bull runs of 2013 and 2017, we could identify periods of large accumulation of coins from these groups, which is often synonymous with “excited top buying”. This pattern appears to break the cycle, with smaller entities engaging in more intense accumulation during corrections and pullbacks, then transitioning to distribution as the market rallies to new highs.

This suggests that even within the group of investors that are typically viewed as retail investors, there exists a more sophisticated and well-educated group of investors.

The launch of the US spot ETF Bitcoin tool also provides institutional investors with a new investment channel, providing them with regulated Bitcoin investment opportunities. This has boosted potential institutional capital flows, with the ETF seeing net inflows of more than $40 billion in the 12 months since launch and total AUM exceeding $120 billion.

If we delve deeper into the IBIT investor capitalization table (as noted by analyst TXMC), we can clearly see signs of increased demand from institutional investors. This is further evidence that Bitcoin is attracting an increasingly sophisticated investor base.

Controlled Downside

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 declines.

When we assess the actual magnitude of losses locked in during the bull market, our current cycle remains the most conservative. The only prominent event where Bitcoin holders suffered significant losses was the yen carry liquidation on August 5. Beyond that, the magnitude of the losses remains relatively small, suggesting a more patient, resilient and price-insensitive investor base.

This is a significant departure from the structure of previous cycles, with the 2015-2018 cycle being characterized by multiple localized selling periods. The 2019-2022 period was more turbulent, with several deep and severe sell-off events, such as the PlusToken liquidation in mid-2019, the COVID-19 sell-off in March 2020, and the mass miner migration in mid-2021.

Bitcoin’s volatility profile is also in a state of flux, with realized volatility at historical lows in the bull market. Realized volatility over this period’s 3-month rolling window is typically below 50%, whereas during the previous two bull markets realized volatility frequently 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 2023-25 ​​cycle has been essentially a series of stair-step price moves (upswings followed by periods of consolidation).

We are also seeing more controlled retracements, with the current cycle experiencing the shallowest average retracements from local highs of all cycles to date.

Summary

Bitcoin continues to establish 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 trades.

In response to criticism of Bitcoin’s role as a store of value and medium of exchange, the network has attracted more than $850 billion in net capital inflows while processing nearly $9 billion in transaction volume per day. These data go a long way toward dispelling doubts about these claims.

Recent regulatory changes in the digital asset ecosystem have prompted a shift in the investor composition, leading to an increasing number of sophisticated institutional investors in the Bitcoin market. This more patient, resilient and less price-sensitive investor base can help reduce drawdowns and lower volatility.