Analyzing Actual Price and Average Market Value: Insights into Bitcoin’s Essential Cost-Basis Metrics

Introduction

The realized price and the true market mean price are vital metrics in the analysis of Bitcoin’s on-chain data, each offering important insights into valuation and investor behavior within the cryptocurrency ecosystem.

Grasping the differences between these two indicators is essential for a thorough understanding of Bitcoin’s valuation, as they together illuminate both the sentiment of the broader holder base and the prevailing market enthusiasm.

Realized price

Realized price is a more intricate metric than the market price, which merely reflects the current trading price on exchanges. It is determined by dividing the realized capitalization by the current supply of Bitcoin. This metric includes all coins in circulation, irrespective of their source (whether mined or acquired through secondary market transactions). This all-encompassing approach ensures that the metric captures the total economic weight of all bitcoins, providing a more complete view of the network’s value. Realized capitalization is the aggregate value of all Bitcoins at the price they were last transacted on-chain. This calculation yields a weighted average price of all Bitcoins based on the last transaction for each Bitcoin.

Graph illustrating Bitcoin’s realized price from 2010 to 2023 (Source: Glassnode)

The realized price can be categorized into two types: those held by long-term holders (LTH) and those held by short-term holders (STH). The LTH realized price is computed by considering only those coins that have remained unmoved for at least 155 days, while the STH realized price includes coins that have been moved within this timeframe. This differentiation enables analysts to comprehend the behavior and sentiment of various investor groups. The LTH realized price often signifies a price level at which long-term investors entered, acting as a support level during bearish market conditions. Conversely, the STH realized price may reflect recent market sentiment and potential resistance levels during bullish trends.

Graph depicting the realized price for long and short-term holders from 2017 to 2023 (Source: Glassnode)

True market mean price

The true market mean price, a relatively recent concept introduced in Glassnode’s Cointime Economics report earlier this year, provides an alternative perspective for analyzing Bitcoin. This metric concentrates solely on coins that have been actively traded, omitting Bitcoin’s thermocap. Thermocap refers to the total cumulative revenue earned by miners, which includes block rewards (newly minted coins) and transaction fees.

Graph showing Bitcoin’s true market mean price from December 2016 to December 2023 (Source: Glassnode)

By excluding thermocap, the true market mean price emphasizes only the coins that have been traded or transferred among investors. Thermocap consists of coins likely held in miner reserves, which may not accurately reflect active market engagement.

Mining operations are fundamentally distinct from investment or trading activities. Miners obtain Bitcoin as a reward for validating transactions and securing the network, independent of market conditions. These coins may be retained regardless of market sentiment or price, which can distort the average cost basis if included. By excluding these coins, the true market mean price provides a metric that more accurately mirrors investor-driven market dynamics.

While the realized price offers a broad perspective on the market’s average cost basis, it encompasses all coins, regardless of their current economic activity. This wide inclusion can sometimes obscure specific investor behaviors, particularly during times of low on-chain activity. In contrast, the true market mean price presents a more focused view, concentrating on the segments of Bitcoin that are actively engaged in the market. This focus renders it a potentially sharper tool for understanding immediate market sentiment and investment trends.

Comparison and insights

The true market mean price rose from $28,659 on January 1, 2023, to $31,896 on December 20, 2023. This increase indicates that active investors in secondary markets have elevated the average acquisition price of Bitcoin by 11%. This suggests heightened buying activity at elevated prices.

The realized price increased from $19,772 to $21,672 during the same timeframe. This 9.6% rise, although less than that of the true market mean price, also signifies a general upward trend in the average cost basis of all Bitcoin holders. This could imply that more Bitcoin was transacted or sold at higher prices, leading to an increase in realized capitalization.

The market price of Bitcoin surged significantly from $16,620 on January 1 to $43,629 on December 20. The substantial gap between the market price and both the true market mean price and the realized price suggests that current trading levels are considerably higher than the average acquisition prices. An extended period of such divergence could indicate a potentially overvalued market characterized by speculation. However, considering that Bitcoin’s spot price has been above the true market mean price for only about 60 days, it reflects a growing bullish sentiment in the market.

Graph illustrating Bitcoin’s realized price (pink) and Bitcoin’s true market mean price (blue) in 2023 (Source: Glassnode)

The comparison of the increases in the true market mean price and the realized price of Bitcoin, while similar in percentage and dollar terms, carries different implications due to the nature of the metrics.

Given its exclusive focus on active investors, the rise in the true market mean price indicates a significant level of activity and sentiment shift among this group. Since this metric only considers coins that have been actively traded, an increase suggests that active investors are buying and selling Bitcoin at higher prices. This could signify a strong bullish sentiment or heightened demand among traders and investors actively involved in the market. The increase in this metric, even if numerically comparable to the realized price, holds substantial significance as it reflects a concentrated change in the behavior of a specific market segment.

Conversely, one could argue that the realized price offers a broader perspective on the market’s average cost basis because it includes all coins — both actively traded and those held dormant. In this context, although the rise in realized price is slightly smaller, it may be more meaningful given its wider base. This indicates that the average cost basis of all Bitcoin holders, including long-term holders, is also on the rise.

However, CryptoSlate’s perspective is that the increase in the true market mean price carries more significance as it reflects a concentrated change in the behavior of a particular market segment. It is more indicative of immediate market sentiment, as it directly mirrors the actions of active traders, who have historically had a considerably greater impact on Bitcoin’s price movements.

Conclusion

The increase in the true market mean price, highlighting the behavior of active investors, emphasizes a notable shift in market sentiment among this group. In contrast, the growth of the realized price, although slightly lower in percentage terms, provides a broad perspective encompassing the entire range of Bitcoin holders.

The trends of these metrics in 2023 illustrate the complexity and multifaceted nature of Bitcoin’s structure. The sharper rise in the true market mean price underscores the crucial role of active traders in influencing Bitcoin’s short-term price fluctuations. Meanwhile, the steady increase in realized price reflects the underlying confidence and a gradual change in the attitudes of the broader Bitcoin market, as it includes both long-term holders and new participants.

Looking ahead, the interaction between these metrics will become increasingly significant. Understanding the effects of active trading, as represented by the true market mean price, alongside the broader market sentiment captured by the realized price, will be essential for investors, analysts, and traders seeking to navigate the market.

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