Market capitalization as an indicator has had its day. Analysts are increasingly using the so-called Realized Market Cap as the basis for determining the value of Bitcoin. Now the metric has reached a new all-time high. Is it time to buy/lend bitcoin? Here are the best 5 bitcoin lending sites if you are planning to do so.
How do you measure the value that users store in Bitcoin?
Typically one relies on market capitalization. The term is borrowed from financial science and actually describes the value of a company. Market capitalization is calculated by multiplying the number of shares of a company in circulation by its current market value.
The Bitcoin market capitalization follows a similar approach: it is calculated from the number of mined BTCs multiplied by the current share price. At the time of going to press, the BTC market capitalization was 171 billion US dollars, around 51 percent below the all-time high of 330 billion US dollars.
Critics have, however, criticised inaccuracies in this type of measurement for some time now. After all, the calculation of market capitalization takes into account coins that have not been moved for years. For example, it is assumed that Satoshi Nakamoto alone has permanently withdrawn about one million coins from supply. However, lost coins are still taken into account in the market capitalization – this type of calculation is correspondingly imprecise.
Realized market cap as an alternative
This is to be remedied by a newer type of calculation, which was originally created by Bitcoin OG Nic Carter in cooperation with Antoine Le Calvez of Blockchain.info. The talk is of the Realized Market Cap.
Instead of accumulating all coins at the current spot price, the Realized Market Cap is calculated taking into account the time when the UTXOs were last moved. The respective market value at which a UTXO changed address serves as the basis for calculation.
The Realized Cap has two decisive advantages over market capitalization: Firstly, BTCs that remain unmoved over the long term are calculated from the accumulated value representation. The metric is therefore considered more accurate.
In addition, the realised cap shows the price floor that Hodler has established. Finally, the metric is the sum of all entry prices below which hard-boiled Hodlers will not sell.
New all-time high reached
As Crypto-Influencer @Rhythmtrader via Twitter points out, the Realized Market Cap reached a new all-time high of 103 billion US dollars on 31 January.
This means that the accumulated Fiat amount that Hodler has spent on BTC as a whole has never been greater than it is now.
Analysts like Murad Mahmudov then used the Realized Market Cap as the basis for their price analyses. According to them, the metric could also be used to determine under- or overvaluation. If, for example, the ratio of market cap to realised cap (the MVRV ratio) exceeds 3.7, one can assume an overvaluation. If the ratio is less than 1, BTC is probably undervalued.
As with all price indicators, however, analysts should not rely on one metric alone; the realised cap also provides only rough indications of the current market situation. At present, BTC appears to be fairly valued: The MVRV ratio is currently 1.61.