February 7, 2023

  • Bitcoin’s realized loss hit an all-time high as FTX collapsed.
  • There is yet another demand for block space on the market.
  • The market is dominated by small transactions.

In the wake of FTX’s unexpected collapse, Bitcoin [BTC] exchanged hands for $15,000, trading at a 2-year low.

As the king coin bounced from the lows of $16,065 to a high of $17,197 to begin the recovery, on-chain analytics platform Glassnode rated the impact of the FTX implosion on market participants, miners and BTC network activity.

Read Bitcoin [BTC] Price forecast 2023-2024

How big were the losses?

Glassnode first considered the size of the losses of the different cohorts of holders that make up the BTC market. A review of BTC’s realized gains and losses revealed that the FTX debacle led to BTC posting a one-day loss of $4.435 billion, an all-time high.

As the price of BTC regained the $17,000 price point, a reassessment of the stats on a weekly moving average showed that the losses had begun to recede, Glassnode found.

Source: Glassnode

To better understand the severity of market participant losses, Glassnode reviewed the Realized Capitalization metric. This metric represents the net sum of capital inflows and outflows into the network since its inception. It is used to determine the severity of capital outflows from the network after the peak of the market cycle.

After the fallout from FTX, BTC’s realized capitalization dropped to May 2021 levels, bringing “the exuberance experienced during the H2 2022 rally to the ATH” nearing the point of full retracement. This, according to Glassnode, suggested “an almost complete detox of this excess liquidity.”

Source: Glassnode

Glassnode noted that,

“The realized loss suffered by Bitcoin investors over the past 6 months is of historic magnitude. Profitability stress begins to subside after the event, but has resulted in a complete wash-out of all the excess liquidity that has accumulated over the past 18 months. This suggests that a full expansion of (the) 2021 speculative premium has now taken place.”

The demand for Blockspace is growing

Historically, prolonged bear markets have been characterized by a decline in network activity, culminating in little income from miner fees on the BTC network.

As the bear market continued, the continued fall in the price of BTC would normally fuel new demand for block space. As sellers were displaced by buyers, the demand for block space would also grow, increasing miners’ revenues.

As BTC recovered from its two-year low, Glassnode found that “miner monthly income fees are starting to rise.” However, it added a caveat

“Of paramount importance is whether this uptick is transient or whether it can be sustained, meaning a possible regime change is underway.

Source: Glassnode

As the market attempts to recover from the collapse of FTX, Glassnode found that smaller-sized transactions (up to $100,000) have dominated the market, while the dominance of larger institutional-sized transfers has declined.

A look at BTC’s Total Transfer Volume stat confirmed this. As the number of transactions grows, the transfer volume decreases, and according to Glassnode this is “probably a reflection of more small transfers”.

Source: Glassnode

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