The past couple of weeks have been tumultuous in the digital asset market as investors’ portfolios recorded sharp price dips and substantial losses. The altcoin space took the most beating, with the global market cap experiencing one of its biggest devaluations on record.
Last week, Bitcoin investors endured what Glassnode called an intense whipsaw in price action. The leading digital asset saw its price initially fall as low as $93k, after which it recovered briefly and rallied to $102k. Now, it is trading closer to $95k.
14-day Bitcoin price chart, since January 29. Source: Glassnode
The realized losses recorded by Bitcoin investors during those choppy swings in price action is being touted as one of the largest of the current bull market cycle.
Bitcoin investors see small respite despite losses
Investors lost around $520M as the market sold off to $93k, making it one of the largest local capitulation events so far. In fact, only the losses locked in on August 5, 2023, during the yen-carry trade unwind, stand out as a larger one-day loss.
The majority of realized losses were recorded by short-term holders, especially those who acquired their coins within the last month. Their willingness to sell at a loss hints at their sensitivity to price fluctuations.
The volatile price action is, for the most part, a response to President Trump’s threat of tariffs applied to Canada, Mexico, and China, which provides an uncertain macro backdrop for investors as everyone watches the drama play out.
Besides this, the persistent strength of the US dollar has contributed to a marginally stressed liquidity environment.
Fortunately, even though the price of Bitcoin has fluctuated wildly in recent weeks, it has not strayed very far from its starting position during this cycle, so the choppy price action and generally sideways movement continue to prevail.
This is thanks to the substantial uptick in liquidity entering Bitcoin and larger capital flows that are balancing the inertia of an increasingly large asset.
The growing presence of a more resilient and patient group of holders has also contributed to the relative stability BTC prices are enjoying, even amidst the relatively unstable macro backdrop.
Will the bull run ever reach the altcoin sector?
While Bitcoin has not been immune to the volatility in the markets, Glassnode analysts believe it is doing relatively well.
The same can not be said for the altcoin sector, which experienced significant sell-side pressure amidst the volatility as many assets struggled to achieve widespread adoption or product-market fit, presenting a more challenging market environment.
This has led to a wide-scale collapse of token prices, with all altcoin sub-sectors underperforming Bitcoin in recent weeks. Using the Principal Component Analysis (PCA) which projects the correlation of token returns into a two-dimensional space to analyze the downside price action, they found that the majority of ERC-20 tokens are densely clustered.
What this means is that a good majority of altcoins had to deal with the same broad-based sell-off, without as much an unexplainable distinction between different sectors. In short, very few tokens were immune to the downside volatility as most of the market dipped at once.
The magnitude of the dip becomes more apparent when examining the 14-day change in the global altcoin market cap. Over the last two weeks, $234B left the altcoin market cap.
The altcoin market is essentially in a bear market, which is very interesting because as it stands, Bitcoin is having a good run and is not displaying the same relative weakness. This suggests a divergence is opening up between BTC and the rest of the digital asset landscape.
Key support levels for Bitcoin have been identified at the Mean MVRV Z-Score of $96.3k and the short-term holder cost basis around $92.2k. Meanwhile, the outlook for the altcoin sector is more uncertain and less optimistic, with hopes of an altcoin market fading with its hemorrhaging valuation.
