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At just 14 years of age, Bitcoin’s uniqueness and volatility present challenges in determining its daily price. Nevertheless, as it evolves into a distinct asset class, Bitcoin has become the focus of advanced pricing and valuation methodologies.
The realized price signifies the average expense at which all existing Bitcoin holders purchased their coins. In essence, it offers a glimpse into the “collective memory” of the market, reflecting the price at which the most recent transaction of each Bitcoin occurred. Establishing Bitcoin’s realized price is vital as it provides understanding into the actual profitability of market participants. However, like any metric, it has its limitations. One potential issue is that it does not factor in lost or inactive coins, which may distort the estimation.
The True Market Mean Price, often referred to as the Active-Investor Price, is an innovative metric developed by ARK Invest in partnership with Glassnode. Instead of depending on historical transactions, this measure focuses on the actions of current market participants. Specifically, it computes the average price at which Bitcoins were last exchanged, considering only those coins that have changed ownership within a specified timeframe. This method excludes the impact of long-dormant coins and emphasizes recent market sentiment. Consequently, the True Market Mean Price provides an accurate depiction of the value at which active Bitcoin participants, those truly engaged in market dynamics, have obtained their assets.
Building upon this metric is the True Market Deviation, which assesses the ratio of Bitcoin’s current spot price to the True Market Mean Price. A higher ratio indicates a larger deviation from the average price paid by active investors. Essentially, this metric can suggest whether Bitcoin is presently overvalued or undervalued based on the participation of active market players.
Recent insights from Glassnode highlight the significance of this deviation. Historically, declines in the True Market Deviation below one have consistently been associated with price declines. Conversely, increases above one have indicated bullish trends. This suggests that when Bitcoin’s spot price exceeds the True Market Mean Price, it frequently signals a market peak, indicating a potentially favorable selling opportunity. In contrast, when the price falls below this mean price, it has traditionally indicated a strong buying opportunity.
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Graph illustrating the true market mean price and true market deviation (AVIV score) from 2012 to 2023 (Source: Glassnode)
Looking at this year’s data, since the start of the year, the True Market Mean Price for Bitcoin has experienced a slight increase, rising from $28,660 to $29,720. Notably, Bitcoin’s price has remained above this mean for fewer than 30 days throughout the year. Following Bitcoin’s rise above $27,000, the AVIV ratio has grown, currently at 0.928. As of this writing, Bitcoin’s spot price is approximately $27,590, significantly below the True Market Mean Price of $29,720.
Graph depicting the true market mean price and true market deviation (AVIV score) in 2023 (Source: Glassnode)
The data indicates that despite the recent increase, Bitcoin may still be undervalued when taking into account the price at which active market participants acquired their coins. This could suggest a potential upward trend in the near future, assuming other market conditions remain favorable.
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