Bitcoin (BTC) has drawn approximately $450 billion in additional capital since November 2022, bringing the total Realized Cap to a staggering $850 billion, as per a recent report by data analytics platform Glassnode.
Bitcoin has consistently held a price point above $100,000 for several weeks, a significant milestone, given that seven years ago, during the 2017 bull run, the cryptocurrency had only just achieved a value of $10,000.
Glassnode attributes the surge in Bitcoin’s realized cap to its escalating prominence on the global front, which has made it an attractive proposition for institutional investors and sovereign entities. The report underscores the involvement of nation-states with Bitcoin as a critical factor. For instance, Bhutan has embarked on large-scale mining operations, El Salvador has recognized Bitcoin as legal tender, and the US is weighing its potential as a strategic reserve asset.
Despite ongoing debates regarding its intrinsic value and utility, Bitcoin has emerged as one of the largest global assets. With a market capitalization of $2 trillion, it has outpaced silver, Saudi Aramco, and Meta, whose market caps stand at $1.8 trillion, $1.8 trillion, and $1.7 trillion, respectively.
As the valuation of Bitcoin escalates, larger capital inflows become necessary to support its market growth. The Realized Cap metric, which monitors the cumulative net capital inflow, underscores Bitcoin’s expansion. Moreover, Bitcoin also serves as a decentralized payment network. Over the past year, the Bitcoin network has processed an average of $8.7 billion daily in adjusted economic transactions, amounting to $3.2 trillion in transaction volume. These metrics powerfully rebut the claim that Bitcoin lacks value and utility.
Nonetheless, since the downfall of FTX in November 2022, Bitcoin’s dominance within the digital asset ecosystem has risen from 38% to 59%. Bitcoin’s market capitalization has surged 5.3x from $363 billion to $1.93 trillion, while the altcoin market has expanded 4.7x from $190 billion to $892 billion. Despite the high correlation between Bitcoin and altcoins, BTC has drawn a disproportionately larger share of new capital.
Institutional investors have shown a preference for Bitcoin, a trend facilitated by US spot Bitcoin exchange-traded funds (ETFs). This interest is attributed to Bitcoin’s inherent scarcity and its function as a hedge against fiat currency debasement. However, despite the increasing interest from nations and institutions, the demand for Bitcoin remains lower than in previous cycles.
Glassnode remarks that new demand now appears in spurts rather than the sustained inflows observed in previous cycles. Small retail participation has seen a decline compared to the 2021 peak, while larger entities have increased their holdings.
Interestingly, despite favorable market conditions, Google’s search interest for Bitcoin has not reached 2021 levels. The investor base is evolving, with retail participants demonstrating more strategic accumulation behavior.
The introduction of US spot Bitcoin ETFs has enabled institutional investors to gain exposure, with over $40 billion in net inflows and over $120 billion in combined assets under management within a year of launch.
The Bitcoin investor base has shown resilience during market pullbacks. The current cycle has witnessed lower realized losses than previous cycles, with the only significant event being the yen-carry unwind on Aug. 5, 2024. The report also pointed out that Bitcoin’s drawdowns have been more controlled, with lower realized volatility, unlike past cycles.
The price action in this cycle has been characterized by a series of rallies followed by periods of consolidation, contributing to a more stable market structure. This stability is attributed to more mature players trading Bitcoin and other crypto assets.
