Original title: "Bitcoin's market share rises to a three-year high. Has the market reached a stage peak again?"

Original author: Chandler, ForesightNews

On October 24, market data showed that the price of Bitcoin fell below $66,000. Since October 21, Bitcoin's upward momentum has weakened, falling from a high of $69,500 to a low of $65,260. Ethereum's trend is synchronized with Bitcoin, falling from a high of $2,770 to a low of $2,440. According to Coinglass data, the market liquidation amount reached $279 million in the past 24 hours, of which long orders were as high as $202 million.

Has the market reached a stage peak again? Perhaps we can find some clues from the on-chain data.

Bitcoin market share rises to three-year high

The Bitcoin Dominance Index (BTC.D) is an index that shows the current share of Bitcoin's market value in the cryptocurrency market. Since around September 2022, BTC's market share has been on an overall upward trend. According to Coinmarketcap data, BTC's market share has recently approached 58%, up more than 8% for the whole year, reaching a high since April 2021.

According to historical data, the early stages of a bull market cycle are usually accompanied by an increase in Bitcoin's market share, while when the market enters the "Altcoin Season" of altcoins, Bitcoin's market share usually declines. At the same time, when Bitcoin's market share reaches a high point, the market tends to enter a sideways or pullback phase. In theory, this is a manifestation of market liquidity and investment sentiment reaching a critical point. It is a natural result of the market starting to take profits after Bitcoin attracted a large amount of capital inflows and the price reached a high level.

The flow of funds for Bitcoin spot ETFs has become the key

It is worth noting that the increase in Bitcoin's market share in this round of market is mainly driven by the large-scale inflow of funds from Bitcoin spot ETFs, especially the participation of institutional investors. According to data disclosed by Ki Young Ju, CEO of CryptoQuant, institutional holdings in US Bitcoin spot ETFs account for about 20%. Asset management companies hold about 193,000 bitcoins. Thanks to spot ETFs, 1,179 institutions have joined in investing in Bitcoin this year.

According to the data, from October 14 to October 21, Bitcoin spot ETFs continued to have net inflows for 7 consecutive days, especially BlackRock ETF IBIT, which had a net inflow of more than $1.5 billion, bringing its current holdings of BTC to 391,484 (worth approximately $26.45 billion). The price of Bitcoin also rose from $62,300 to more than $69,000.

With the first net outflow of Bitcoin spot ETFs after 7 days of net inflows on October 22, Eastern Time, with a total net outflow of $79.0905 million, the price trend of Bitcoin also began to show stagflationary fluctuations accompanied by a downward trend. This phenomenon can be interpreted as the market not breaking through important technical support points, investors' confidence in the short-term prospects of the market declined, and when institutional funds began to decrease or flow out, prices fell. If Bitcoin fails to break through effectively, the price trend may face further consolidation and shocks.

From another level of understanding, from the market's reaction, the rise of Bitcoin has attracted a lot of liquidity, which is particularly evident in the current market stage. At the same time, Bitcoin has gradually absorbed the liquidity of other altcoins during the shock period, further forming an obvious "blood-sucking" effect. In the process of Bitcoin's rise, the prices of other crypto assets often do not follow the rise, causing market liquidity to further tilt towards Bitcoin. If Bitcoin fails to break through the key resistance level, the market may experience a short-term correction, liquidity will be further withdrawn from the altcoin market, and price volatility will also increase. Usually when Bitcoin reaches a new high, some liquidity may overflow into the altcoin market, which may usher in a larger-scale price increase.

USDT market cap hits record high, USDT.D hits support

The total market cap of stablecoins has increased its share by taking away Ethereum's share. Excluding other altcoins, its share of the total market cap of BTC, ETH and stablecoins has increased from 7% to 10% in 2024. According to DefiLlama data, the total market cap of stablecoins is now $172.778 billion, a new high since May 2022.

Among them, the market cap of USDT hit a record high of $120 billion, accounting for 69.49% of the total stablecoin market cap. This is also the main driving force for stablecoins to take market share from ETH in the past six months.

The collapse of Silicon Valley Bank (SVB) in March 2023 was a turning point in the stablecoin competition, causing USDC's share to shrink significantly and USDT's supply to increase. But to a certain extent, the rise of USDT Dominance Index (USDT.D) is not a happy thing for the market. USDT.D can serve as a barometer of market sentiment and effectively predict the top and bottom of Bitcoin's price in different cycles.

As can be seen from the figure below, in this year's market, whenever USDT.D approaches or retests its long-term rising support line, Bitcoin tends to experience local price peaks. This is because investors tend to transfer funds to stablecoins such as USDT to avoid risks during periods of market volatility. Therefore, when USDT.D rises, it usually implies the withdrawal of market funds, which is the high point of Bitcoin prices in recent stages.

Demand side weakens

From a medium- to long-term perspective, the absolute realized profits and losses in the current Bitcoin market are showing a significant downward trend. Since Bitcoin reached its historical high of $73,000 in March 2024, the rate of new capital inflows into the market has slowed significantly. According to data provided by Glassnode, the current daily capital inflow into the market is about $730 million. Although this figure is still not small, it is a significant decline compared to the peak of $2.97 billion in March.

This shows that the momentum of the market demand side has obviously weakened. Although funds are still flowing into the market, their scale is not enough to drive the long-term stable rise or fall of Bitcoin prices. Instead, it is more likely to experience sharp fluctuations under relatively small changes in funds. This lack of liquidity may cause Bitcoin to continue to show large price fluctuations in the short term. At the same time, the overall lack of clear direction in the market has made the wait-and-see sentiment of large funds more intense.

Overall, Bitcoin is indeed in a market situation where high volatility and uncertainty coexist. The price trend in the past six months is more like a continuous and repeated fluctuation of "straight up and down" within the existing range. Before there is a real large-scale injection or outflow of funds, it may be difficult for the price of Bitcoin to break the current shock pattern.

This market phenomenon is closely related to the emotional fluctuations of market participants. The wait-and-see sentiment of large funds is relatively strong, and many institutional investors choose to wait for clearer market signals, such as further clarification of macroeconomic policies or adjustments to the Federal Reserve's future monetary policy, as well as the upcoming conclusion of the new US presidential election. At the current stage, market sentiment is relatively fragile, and any sudden changes at the macro level may become a catalyst for market fluctuations.

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