Bitcoin realized price: Majority of BTC holders now in the red

BTC holders stand to realize losses if cashing out, though investors may see opportunity

Teddy bear next to silver Bitcoin, sitting on US dollar bills                                 
Will the bears remain in charge for now? – Photo: Shutterstock
                                

Contents

Bitcoin realized value: Latest news

A wide gulf has formed between the realized capitalisation (RC) of Bitcoin and its market capitalisation (MC) – $63bn, to be precise. At the time of writing being 20 June 10:00 BST (UTC +1), RC stands at $432bn against an MC of $391bn, giving a market value to realized value (MVRV) ratio of 0.9. In plain speaking, the majority of Bitcoin holders are in the red and will realize losses if they cash out right at this point.

Graph of Bitcoin realized price
Most investors will realize losses if exiting – Source: messari.io

This negative MVRV trend began following the swift reversal of Bitcoin’s all-time high (ATH) in November 2021, as shown in the above Bitcoin realized price chart. The positive MVRV ratio preceding Bitcoin’s ATH – which almost touched the $69,000 mark on 10 November – saw exceedingly healthy numbers as high as 2.2 in August, when the majority of BTC holders could have netted substantial profits from an overvalued coin.

Following the extended bear market, Bitcoin’s market value (MV) finally dipped below its realized value (RV) on a per-coin basis. In other words, the average value of all holders’ BTC exceeded what it was trading for on the exchanges, meaning losses should they want to cash out.

Few who have kept up with the news will be surprised at this, but at the very least it brings the message home that Bitcoin is officially in a bear cycle. If the cryptocurrency’s RV continues to trend above MV, holders could either cut their Bitcoin losses and cash out, or hold until conditions improve. The former could send BTC’s price dropping even further.

Comparing Ether’s realized value

Ether remains in an even more undervalued position than Bitcoin, with an MVRV of 0.78, as shown in the below chart. Generally speaking, the market trends in the altcoin space, of which Ether is the reference coin, move exponentially against Bitcoin’s performance.

Graph of Ether’s realized price
Ether remains undervalued – Source: messari.io

Further downward pressure on Ether’s price could be expected should investors continue to cut their losses and exit their positions.

What will happen next?

Given Bitcoin’s undervalued positions, new investors might see it as an opportunity to buy in. A critical mass of new buyers could push BTC into a bullish reversal, hopefully bringing the MVRV into a positive position once again.

It all depends where the bottom of the pit is. Analysis by Currency.com suggests that the bulls are mounting a resistance at the $20,000 line. A successful defence could indicate an end to selling pressure, although there is a strong chance that the $20,000 defence cannot be held. 

Currency.com will continue to provide up-to-date analysis on the Bitcoin realized price as the market progresses.

Realized value explained

Realized value (RV) is a variant of market value (MV) that is used to determine the true on-chain value of a digital asset. Whereas MV simply multiplies the total number of circulating coins with the latest exchange price, RV brings some variables into the mix.

Instead of the most recent exchange price, RV values each coin from the last time it was transacted, thus giving a more accurate picture of the actual value stored on the blockchain among holders.

For example, John buys $10 of BTC in November 2021. By June 2022, BTC’s value falls by 70%. Technically speaking, John’s BTC that he bought in November now has an MV of $3. However, the RV of that same BTC remains at $10. John then decides to sell this BTC for $3. Now that it has changed hands again, the RV is revalued at $3.

Applying this equation to all accounts on the blockchain allows us to assess whether a cryptocurrency is overvalued or undervalued. In the above example, RV will be reduced as the weight of that initial $10 BTC holding is recalibrated. The reverse occurs when a holder sells their BTC for a higher price than the initial purchase price.

In a healthy bull market, RV should not be more than MV (as is currently the case with Bitcoin and Ether) since it shows that the majority of holders will be unable to sell at a profit.

MVRV ratio explained

The MVRV ratio is a simple equation used to determine how much a coin is overvalued or undervalued. This is expressed as:

MVRV = realized capitalisation divided by market capitalisation

An MVRV below 1.0, as is now the case with Bitcoin and Ether, is bad news, suggesting that assets are being held at a loss. However, investors may also use a <1.0 MVRV as a potential entry signal, thus creating buy pressure that will hopefully drive up value.

While an MVRV ratio of >2.0 suggests that assets are being held at a profit, a higher ratio could be a warning sign that sell pressure is looming as investors cash out for profit, potentially driving the asset’s value down again. Smart investors can use the MVRV ratio to assess entry and exit points for their trading strategy. 

The MVRV ratio was created in 2018 by Murad Mahmudov and David Puell as a way to “eliminate some of the lost, unused, unclaimed coins from our total value calculations”.

FAQs

Whereas market value simply multiplies Bitcoin’s (or another cryptocurrency’s) circulating volume with the latest exchange price, realized value assesses the value of each Bitcoin at the point of last transaction. Realized value helps to determine to what extent Bitcoin is overvalued or undervalued.

A realized price is the average value of all Bitcoins (or another cryptocurrency) at the time of purchase, as opposed to the market price at a given point in time. If the realized price is higher than the market price, on-chain assets are being held at a loss, suggesting a bear market.

The MVRV ratio is used to calculate how much Bitcoin (or another cryptocurrency) is overvalued or undervalued. This can be expressed as: MVRV = realized capitalisation divided by market capitalisation. An MVRV ratio below 1.0 is a bearish sign, while anything greater than 2.0 suggests a healthy position, although the higher the ratio goes, the higher the likelihood of an impending sell-off as investors take profit.

There are over 83 million wallets holding Bitcoin. The precise number fluctuates daily.

Following an extensive buying spree at the behest of chief executive officer Michael Saylor, MicroStrategy became the largest publicly-traded holder of BTC, surpassing Tesla.

Further reading

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
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