In the cryptocurrency space, there are hundreds of metrics that can be used for trading analysis. Ultimately, this can often lead to analysis paralysis. But don’t worry.
In this article, I will be covering one of the most important metrics that can help you navigate the space with ease. This is where Bitcoin realized price comes into play.
Although a simple metric it often marks the end of bear markets and the most opportune times to invest or take profit. So with that being said, let’s jump right in.
TL;DR:
Bitcoin realized price is the aggregate value of all Bitcoins purchase price, divided by the circulating supply of Bitcoin. In turn, an average purchase price is given. This can indicate whether Bitcoin is overvalued or undervalued.
What is Bitcoin’s realized price?
Bitcoin realized price is a calculation used to determine the average cost basis of market participants. In other words, it shows the mean purchase price for each Bitcoin.
When the Realized price is higher relative to the market price it indicated that investors are holding a paper loss. Whereas, the opposite happens in bull markets. When it is lower than the market price the majority of investors profit.
The calculation is as follows:
Realized price = realized cap / total supply
Why is Bitcoin’s realized price important?
Bitcoin realized price is important as it indicates whether market participants are in profit on average or in a loss. For instance, if the current market price is below the realized price then the majority of market participants are at a loss.
At this point, this generally marks a cycle low. Once the realized price is at a loss it indicates market duress. Generally speaking, holders with less conviction sell, and then the supply is transferred over to value investors.
In turn, most of the selling pressure ends and a new bull market begins. All in all, when combined with the market price it can determine whether Bitcoin is overvalued or undervalued.
Realized price analysis
As shown in the above chart, a negative Bitcoin realized price has marked the end of 3 prior bear markets. All in all, previous bear markets were all ended when Bitcoin’s price fell below the 200-week MA for realized price.
In the 2018 bear market, the negative realized price lasted 134 days, in 2015 it was 292 days, and in 2011 was 116 days. This comes to an average length of 180 days.
Conversely, bull markets are generally marked by a steep increase in realized price. This would indicate a strong trend that provides more opportunities to take a profit. Once it starts to level off this shows the trend is coming to an end.
So when analyzing when to invest it is important to consider this. Simply put, when the realized price is negative it provides tremendous investment opportunities with low risk to reward.
If you want to view this article in a visual format then please check out my video below:
Conclusion
Overall, Bitcoin realized price is a great way of determining when to buy or sell. It can mark both the top of bull runs and the end of bear markets.
However, it is important to combine it with other trading indicators as the metric is not perfect. Nevertheless, it is certainly one to add to the trading arsenal.
I hope you found this article useful and thanks for reading it. Want to learn about Bitcoin’s immutability? Click here to read my previous article.
