Glassnode Insights: A Deep Dive into Post-Election Capital Flows and Strong Spot Market Drivers, Will It Continue to Rise in the Future?

Author: Lawrence, Mars Finance

Abstract

• This article explores the phenomenon of Bitcoin recently reaching an all-time high and analyzes the factors driving this upward momentum, particularly the strong demand for spot markets against perpetual futures.
• We analyze the impact of the recent U.S. elections on institutional capital inflows, highlighting how the popularity of spot holding strategies has led to a surge in U.S. spot ETFs and open interest in CME futures.
• An assessment of the ATH discovery phase focuses on the percentage of supply in profit and the market dynamics that accompany profitability exceeding 95% for an extended period.
• We delve into on-chain cost basis bands to track demand momentum, illustrating how the proximity of these bands indicates periods of strong market demand.
• Finally, we examine realized profit levels, noting significant profit-taking activity, but indicating that current levels remain below previous historical highs, suggesting room for continued growth.

Post-Election Surge

After the announcement of the U.S. presidential election results, the market widely perceived that the Trump administration would adopt a more crypto-friendly stance, sending positive signals to the cryptocurrency market and driving Bitcoin to an all-time high. All major BTC:FX pairs reached historical highs.

The chart shows the retracement of Bitcoin (BTC) against various fiat currencies and gold (XAU) from ATH. Notably, BTC:TRY (Turkish Lira) was the first to reach ATH on June 26, 2024, ahead of other pairs. On November 6, 2024, nearly all BTC:FX pairs set new highs, except for BTC:gold, which, despite Bitcoin's current valuation of $886,000, remains about 19.9% lower than its ATH.

Despite Bitcoin's current dollar valuation of $886,000, the BTC:gold pair is still approximately -19.9% below its ATH.

Historically, U.S. presidential elections have had a significant impact on Bitcoin's market performance, with notable changes in price and actual market capitalization (representing the cumulative wealth invested in the Bitcoin network).

2016 Election (Republican Administration):

• Before the election, actual capital surged by 20.3%, and after the election, it rose by 55.5%.
• Prices increased by 34.7% before the election, and in the months following the election, prices skyrocketed by 124.6%.

2020 Election (Democratic Administration):

• Actual capital inflow grew by 16.5% before the election and by 196.3% afterward.
• Prices rose by 35.4% before the election and soared by 306.8% afterward.

2024 Election (Republican Administration to Date):

• Actual capital increased by 13.3% before the election but only slightly rose by 2% afterward.
• Prices increased by 10.1% before the election and have risen by 27.9% since.

Thus, the current cycle reflects a more moderate response compared to previous election seasons, although it remains very optimistic. The market is currently adapting to potential changes in crypto policy that may occur in the coming years.

Bitcoin has continued its recent momentum of reaching historical highs, achieving the largest weekly chart ever with an increase of up to $116,000. This surge greatly exceeded historical weekly trends, nearly five times the statistical upper limit (1 standard deviation), indicating unprecedented bullish momentum.

This abnormal price movement reflects market optimism, with participants viewing the anticipated regulatory environment as a catalyst for continued capital inflow.

Spot Trading Volume Driven Breakthrough

This chart highlights the daily cumulative trading volume delta (CVD) of the Coinbase spot market, showing a significant increase in buying pressure. Recently, daily spot CVD reached $143 million, nearing the previous high of $152 million set on March 13.

Since July, each Bitcoin price increase has been accompanied by a substantial rise in buyer interest on Coinbase, indicating strong demand in one of the largest spot markets in the U.S. This sustained interest from investors suggests that market participants are increasingly optimistic about digital assets, reinforcing the current upward trend's spot-driven nature.

Following the strong buying pressure in the Coinbase spot market, the recent rebound has also driven significant capital inflow into U.S. spot ETFs, with assets under management increasing by $6.8 billion in the past 30 days. This growth surpassed the $7.6 billion increase in CME futures open interest, indicating a clear preference among investors for spot investments via ETFs.

The correlation between ETF inflows and CME open interest highlights the dominance of spot holding strategies. However, the stronger ETF demand underscores a shift towards direct spot exposure during this market rally.

Typically, as spot market demand continues to grow, perpetual futures contracts also exhibit similar positive momentum. The recent peak in the perpetual contract market premium—reaching $1.59 million per hour on November 12 (with a 7-day average of $392,000 per hour)—reflects strong speculative demand.

However, this level remains below the mid-March highs, further confirming the hypothesis that the current rally is primarily driven by spot demand. The demand for perpetual contracts is moderate but significant, emphasizing that the price surge thus far has been primarily driven by spot demand rather than leveraged speculation.

Price Discovery Phase

Bitcoin has entered a new price discovery phase, with all circulating supply converting into profit. This chart shows the percentage of supply in profit and the consecutive days each month that this metric exceeds 95%.

Historically, this phase lasts about 22 days before a correction occurs, with more than 5% of the supply falling below the initial acquisition price. The current rally has maintained this high profit level for 12 consecutive days, highlighting strong market sentiment but also suggesting that a correction may occur based on past patterns.

This chart examines the cumulative realized profits during the new ATH discovery phase, highlighting the scale of profit-taking activity. Historically, realized profits in the range of $30 billion to $50 billion per month typically precede a cooling-off period before demand exhaustion.

Currently, since entering the latest ATH exploration phase, we have realized $20.4 billion in profits. While the magnitude of profit-taking is substantial, it remains below historical peaks, indicating that there is still room for further increases before potential demand exhaustion.

Price Discovery Band

As we enter a new ATH discovery phase, determining the most effective price models to respond to this intense market activity becomes crucial. This chart displays the cost basis of new investors along with the statistical upper and lower limits (±1 standard deviation).

During the ATH discovery phase, as new investors enter the market at higher prices, Bitcoin's price typically approaches and tests the upper limit multiple times, driven by strong demand momentum. Currently, Bitcoin's price is $879,000, slightly below the upper limit of $949,000. Monitoring the proximity to these bands, especially the upper and middle bands, can highlight periods of strong market demand, reflecting the enthusiasm of new capital entering the market during rebound phases.

Currently, the spot price of Bitcoin is $879,000, below the upper limit of $949,000. Monitoring the proximity to these ranges, particularly the upper and middle limits, can highlight when periods of strong demand may slow down and when prices may rise sufficiently to increase selling pressure from many existing holders.

The currently realized profit volume averages about $1.56 billion per day, with long-term holders contributing $720 million, accounting for 46% of the total.

Despite the increase in profit-taking activity, the cumulative realized profit volume is about half of what was recorded during previous cyclical ATH periods (breaking $3 billion/day, with over 50% attributed to long-term holders). This again suggests that if demand continues to flow in, there may still be room for further increases, and more selling pressure is needed before reaching typical profit realization peak levels.

Conclusion

This briefing analyzes Bitcoin's recent historical highs, primarily driven by strong spot market demand, mainly through U.S. spot ETFs. After the election, institutional investor interest surged, with significant capital inflows into CME futures and ETFs benefiting spot investments and pushing Bitcoin into a new ATH discovery phase. Currently, over 95% of circulating supply is in profit, which typically precedes significant profit-taking.

Currently, nearly all circulating BTC supply is in profit, although the substantial increase in profit-taking activity offsets this effect. While both short-term and long-term holders have seen actual profits increase, they remain below previous highs, potentially indicating that many investors are willing to wait for higher prices.