Bitcoin’s Realized Price is the value of all Bitcoins in circulation (at the price they were bought) divided by the number of all Bitcoins in circulation.
In other words it is Bitcoin’s Realized Cap divided by its Total Supply.
Jonathan Ovadia, OVEX CEO
Step 1: Determine Realized Capitalization
Note: UTXO is the ‘Unspent Transaction Output’ – in other words it is the amount left over following a transaction.
Realized Cap is calculated by taking the sum of all UTXOs multiplied by the price of Bitcoin at the time of their creation.
Realized Cap is a variation of Market Cap that values each UTXO based on the price when it was last moved, as opposed to its current value.
In other words it represents the realized value of all the coins in the network, as opposed to their market value:
- Where the market cap trades above realized cap, the market is in aggregate profit
- Where the market cap trades below realized cap, the market is at an aggregate loss
- When market cap trades below realized cap it has historically signalled cyclical bottoms for bear markets
See below chart for an example:
Step 2: Calculate Realized Price
Unlike the current Market Price, which tells us the price of BTC right now, Realized Price tells us the average purchase price of all Bitcoins in circulation. In other words it is an estimate of the aggregate cost basis for the network.
Why is this Metric Important?
Bitcoin Realized Price is important because it shows the economic state of the Bitcoin market at an overall level:
- When the BTC Market Price is ABOVE Realized Price then, on aggregate, the market participants are in profit
- When the BTC Market Price is BELOW Realized Price then, on aggregate, the market participants are incurring a paper loss
It is a useful metric because it can show when the market is under a period of distress.
That is when:
Market Price < Realized Price.
This means that (on aggregate) Bitcoin holders are holding onto paper losses. These periods have historically occurred at major cycle lows.
Why? Because weaker hands end up selling to value investors at the market cycle lows before BTC Market Price eventually moves back up above Realized Price as it enters a bull market phase.
See below chart for an example:
