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The editors of BeInCrypto analyzed the on-chain indicators of BTC, estimating the market and realized value of bitcoin, in order to use them to deal with the current situation on the market.
The value of the on-chain indicator of market capitalization is now approaching the indicator of realized capitalization. As history shows, the market forms a bottom when the first indicator falls below the second.
Realized and market capitalization
Market capitalization of BTC (market cap, MC) is traditionally used to determine the value of cryptocurrency. This on-chain is calculated by multiplying the total number of coins in circulation by the current BTC rate.
However, some analysts believe that a more accurate and reliable picture is given by the indicator of realized capitalization (realized cap, RC). When calculating it, instead of the BTC market rate, the price that was fixed at the time of the last movement of the coin in the blockchain is used (the last indicator of unspent balances on transactions, UTXO).
This helps to clear the big picture of a factor such as lost coins or coins that have not been in motion for a long time. The market is in the black if the MC on-chain indicator exceeds the RC.
In a bull market, the RC metric usually rises rapidly as investors want to lock in profits and old coins come into motion. In a bear market, the indicator falls because hodlers sell at a loss.
A similar rapid increase in this on-chain indicator was observed in the period from November 2020 to May 2021. Subsequently, he launched another phase of growth, which lasted until November 2021. However, it was much smoother compared to the previous one.
On March 25, 2022, the RC metric reached an all-time high of $466 billion, at which time the BTC rate was $47,000. This suggests that investors did not take profits around the historical maximum of November 2021, but instead preferred to wait for a decline and a subsequent rebound.
As a result, while BTC sank from an all-time high of 50+%, the realized capitalization rate fell by less than 10%.
Meanwhile, the dynamics of the on-chain indicator of market capitalization copies the movements of BTC, since it comes from its current rate. At the time of writing, the figure was $558 billion.
What does their interaction promise to the course? BTC
The interaction between these two on-chain metrics allows us to make a number of interesting observations and predictions on the further trend of bitcoin.
Since 2017, there have been only two episodes where mc (light blue) has dropped below the RC (lilac) value. This happened in December 2019 and march 2020 (black circles).
This allows us to assume that the market is groping for the bottom when the value of the market capitalization indicator falls below the realized capitalization indicator.
We can also notice similarities between the period leading up to the formation of the foundation in January 2019 and the current situation.
After steady growth, the market capitalization indicator consolidated over the realized capitalization value during January-September 2018, touching the bottom directly above this metric three times.
After that, the MC indicator sank below the RC and then formed a bottom.
Currently, the value of market capitalization – also after steady growth – has already twice reached the bottom above the line of realized capitalization, and now it is rapidly leaning towards it again.
If history repeats itself again, we can see the first indicator fall below the second. This can be a signal that the market has reached the bottom.
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