Glassnode: Capitulation is underway, but the market hasn't bottomed yet

Bitcoin wealth is being distributed from short-term holders to long-term holders due to the continued capitulation of retail investors and miners, suggesting that the market may be close to a bottom.

The latest blockchain weekly report from blockchain analytics firm Glassnode, published on July 11, explained that the market capitulation has been going on for about a month, with several other signals pointing to a Bitcoin price bottom forming.

However, analysts at Glassnode wrote that the bear market "still needs some duration," as long-term holders (LTH) tend to have greater confidence in Bitcoin as a technology, with more and more long-term holders are bearing the greatest unrealized losses.

“For the bear market to reach an eventual bottom, the share of Bitcoin held at a loss should be transferred primarily to those who are least price sensitive and most steadfast in their convictions.”

They added that the market may need further "downside risk to fully test investor resolve and allow the market to build a resilient bottom."

Unrealized losses are the loss in dollar value of a holder's position before it is sold.

Glassnode bases this assessment on the observation that during the previous bear markets of 2015 and 2018, more than 34% of the Bitcoin supply held by LTH was in unrealized losses. The proportion of short-term holders (STH) is only 3% to 4%.

Currently, 16.2% of the supply held by STH is at a loss, compared to 28.5% for LTH. It added that Bitcoin is moving to the new STH and they aim to speculate on the price, but there is less confidence in the asset.

LTH may still be under-represented in losing coins.

This means that as LTH buys more bitcoin, they must have diamond hands (note: meaning ready to hold on to their investment assets until they reach their ultimate goal), which means they cannot sell before analysts notice A real market bottom. Cointelegraph also agrees with this view, and Delphi Digital also believes that under the current market conditions, it will take more time to call it a bottom.

In a sign that Bitcoin miners are selling their coins, the market may be testing a bottom range. Data from Glassnode shows that miners have sold 7,900 BTC since the end of May, but spending has slowed recently to about 1,350 BTC per month.

The report again emphasizes that timing is a key factor in determining where the market bottom might be. During the 2018-2019 bear market, miner capitulation took about 4 months to bottom out; the 2022 sell-off only lasted about a month or two. Miners still hold about 66,900 BTC, so “the risk of further sell-offs may remain in the next quarter unless there is a meaningful recovery in bitcoin prices,” the report concluded.

Overall, the market looks close to a bottom and "has many of the hallmarks of the late stages of a bear market," Glassnode noted, but investors should be aware that further pain may be ahead.

"Overall, there are certainly signs of widespread capitulation and extreme financial stress."