Analysis firm Glassnode says that a particular niche in the DeFi sector remains intact despite its problems in the altcoin market.
Institutional money is shifting to these altcoin projects, according to Glassnode data
Glassnode reports in a new analysis that while many Ethereum investors are currently at a loss, capital is flowing into stablecoins:
The total capitalization of the four largest stablecoins (USDT, USDC, BUSD and DAI) has also now exceeded the Ethereum market cap by $3.0 billion. These stablecoins had previously surpassed 50% of Ethereum’s market cap multiple times during 2020-22. But this year it saw a dramatic increase in May and June.
In the Glassnode report, he adds that this is the first time the altcoin market has witnessed such a situation.
The report also notes how the new development of such stablecoin interest in ETH represents:
- Striking rise of USD-backed stablecoins as unit of account and quote asset.
- It is clear how strong the dollar-denominated liquidity demand has been in recent years.
- Stablecoins now make up three of the top six cryptocurrencies by market cap.
Glassnode does note some subtleties, although not every stablecoin works on Ethereum. He mentions that the data shows that market participants take a risk-averse approach:
This incident highlights why current leverage reduction is occurring as the disparity between the value of crypto collateral and the unit of account of margin debt (USD stablecoins) widens.
Why investors are moving away from Ethereum
The firm evaluates how Ethereum’s recent drop in price shows that a significant percentage of token holders are sitting on significant unrealized losses not seen in nearly four years.
ETH spot price is currently trading at $990. Meanwhile, the total market is well below the current $1,730 price. This means that the market is holding an average unrealized loss of -30.0%.
Most long-term investors are now at a loss
Ethereum’s profit and loss ratio shows that there are currently unclosed positions equal to 23% of market capitalization. As a result, it means that even long-term ETH traders are now, on average, at a loss in their positions. The latest example of this is explained as prices fell 64% from $230 to $84. An even deeper capitulation was earlier in September 2018.
Glassnode concludes its analysis by referring to historical cryptocurrency cycles where early innovation brought with it both price increases and leverage.
At the time of writing, Ethereum is trading below $1. ETH is down more than 70% from its opening price of $3,730 in 2022. Meanwhile, Bitcoin slumps below $20,000, with most altcoins 90% off ATH. The cryptocurrency market last saw this volume in late 2022.
