Analyzing Bitcoin’s market cap exhibits that the 2022 bear market introduced the fourth worse drawdown from the all-time excessive in its historical past. Bitcoin’s drop to $15,500 represents a 76.92% drawdown from its ATH.
Market capitalization is likely one of the most generally used metrics when estimating the scale and worth of an asset. Outlined because the mixed worth of all items of an asset, market capitalization is calculated by multiplying the value by the circulating provide.
With regards to Bitcoin, market capitalization and its fluctuation is usually used to find out the power and adoption of the community. It’s additionally particularly helpful when evaluating Bitcoin to different belongings and markets.
Probably the most important value drawdown from ATH occurred on the finish of 2011 when an aggressive bear market worn out 91.78% of Bitcoin’s market cap. Crypto winters in 2015 and 2018/2019 noticed drawdowns of 82.75% and 82.63%, respectively.
That is in keeping with CryptoSlate’s earlier evaluation, which discovered that every market cycle posted greater lows.
Nonetheless, market capitalization fails to signify the precise state of the community. Because of numerous misplaced and inactive cash, market capitalization is usually greater than the realized worth of the community.
That is the place realized cap is available in, because it exhibits the worth of the Bitcoin community primarily based on energetic cash.
Not like market cap, which values cash primarily based on their present worth, realized cap values every UTXO primarily based on the value at which it final moved. This strategy is a a lot better proxy for the worth saved in Bitcoin and can be utilized as an estimate of the combination value foundation of the community.
Realized cap drastically reduces dormant and misplaced cash’ influence on the community. These cash are seen as having low financial worth, as they have been final moved at a value a lot decrease than its realized value that they’ve little influence on it. Nonetheless, if these cash have been moved after being dormant for years, their influence on the realized value could be correspondingly important.
The magnitude of change in realized cap exhibits the distinction in value between the value at which a coin was final spent and the value at which it beforehand moved.
Taking a look at Bitcoin’s value by the realized cap exhibits that the 2022 drawdown was the second worse in its historical past. In November 2022, Bitcoin noticed its realized cap drop by 18.8% from the all-time excessive recorded in November 2021.
Graph exhibiting Bitcoin’s realized value drawdown from ATH from 2011 to 2023 (Supply: Glassnode)
The continued bear market put Bitcoin’s realized cap at $383 billion. That is $56 billion decrease than Bitcoin’s present market cap, which stands at $439 billion.
Evaluating Bitcoin’s market cap to its realized cap is believed to be a superb indicator of market phases. Specifically, when the market cap is greater than the realized cap, the market is in mixture revenue.
Put merely, the realized cap exhibits the worth at which the cash have been purchased, whereas the market cap exhibits the worth at which they are often offered.
Conversely, when the realized cap is greater than the market cap, the market is in mixture loss, as the worth at which most cash have been purchased is greater than the worth at which they are often offered.
Information analyzed by CryptoSlate confirmed that the market is at the moment in mixture revenue. And whereas that revenue isn’t as excessive because the crypto market is used to, it signifies a sluggish and regular restoration from the second-worst value downturn in Bitcoin’s historical past.