Since bottom formation is usually characterized by long-term holders (LTHs) bearing a significant portion of the unrealized loss, the Bitcoin (BTC) market is estimated still not touched the bottom, despite capitulation happening, according to the latest Week On-Chain report by Glassnode.
The market insight provider explained:
“For a bear market to reach an ultimate floor, the share of coins held at a loss should transfer primarily to those who are the least sensitive to price, and with the highest conviction.”
For this to happen, Glassnode suggests two mechanisms ought to happen. First, entities with weak conviction or short-term holders (STHs) should exit the market. Secondly, the gradual transfer of coins should happen to LTHs, who have a strong conviction and are relatively price-insensitive.
Currently, STHs hold 16.2% of the supply in loss, indicating that freshly redistributed coins should go through the maturation process in the hands of long-term holders.
“This indicates that whilst many bottom formation signals are in place, the market still requires an element of duration and time pain to establish a resilient bottom. Bitcoin investors are not out of the woods yet.”
Is the redistribution of wealth from weak to strong hands happening?
Glassnode pointed out that one of the major impacts of a lengthy bear market entails the redistribution of wealth amongst the remaining stakeholders.
Using the UTXO Realized Price Distribution (URPD) indicator, Glassnode analyzed the redistribution happening in the BTC market and stated:
“We can see a redistribution pattern occurring around the $30k floor, originally established in May-July 2021. Over the course of May-June this year, we can see prices trade down to the $20k region which becomes a significant trigger point for both investor capitulation, and new buyers, thus being a node for coins changing hands.”
Therefore, for ultimate capitulation to happen, Bitcoin needs to enter the bottom discovery phase, characterized by extended periods of financial pain and diminishing profitability that reduces new demand.
Capitulation in the market occurs when investors have given up on trying to recover lost gains based on falling prices.
Meanwhile, Bitcoin recently surged to the $22K level amid Boris Johnson’s resignation. Nevertheless, the leading cryptocurrency had lost momentum and dropped to the $19.7K zone during intraday trading, according to CoinMarketCap.
Image source: Shutterstock, Glassnode