Glassnode’s senior analyst has explained how much capital it would take to change the Bitcoin market cap by $1.
Bitcoin realized capital needs to change by this amount to change market cap by $1
In a new post, senior analyst at on-chain analytics firm Glassnode, @_Checkmatey_, discussed the impact of capital flow into or out of Bitcoin on the asset’s market cap.
For this calculation, the analyst used BTC’s “Realized Cap” model. This capitalization model assumes that the actual value of a coin in circulation is not the current spot price, but the price at which it was moved on the blockchain.
Since the realized cap includes the price at which each investor bought their coins, its value essentially represents the total amount that holders have invested in the asset. “Sure, there are nuances, but in my experience it’s a pretty accurate estimate,” says the head of Glassnode.
Now, to see what the exact change in market cap is when this realized cap changes (implying a capital inflow or outflow), the analyst took the 90-day percentage change of these two metrics and then determined their values (first the realized capitalization, then the market capitalization).
Below is the table for this bitcoin ratio.
The ratio between 90-day changes in realized capitalization and market capitalization | Source: @_Checkmatey_ on X
The graph shows the relationship between the 90-day changes in realized capitalization and the market capitalization shaded in grey. Obviously, the value of this metric seems to have fluctuated wildly over the years.
However, some interesting patterns can be discerned. It seems that historical bull markets have tended to stall when the ratio climbed above 1.0.
At this value, more than $1 must be invested in the asset to add $1 to its market cap. Of course, this is not sustainable, so it is likely that the top will be reached when these conditions occur.
Prior to 2016, the value of the metric fluctuated between $0.45 and $1 as the Bitcoin market was immature and few holders ever HODLed their coins for any length of time.
However, the 4-year median (the red line) has fallen to just $0.25. “HODLers are more familiar than ever with Bitcoin because of their education, and the circulating supply of cash continues to decrease,” the analyst explains. “And that’s despite the fact that circulating supply has peaked.”
As the chart shows, the ratio of BTC realized capital to valuation change is currently less than $0.25, which means less than 25 cents is enough to add $1 to market cap.
“In summary, there is no perfect model for capital inflow vs. valuation outflow, but my instinct is that this isn’t the worst estimation approach,” notes Glassnode’s leader. “It’s kept simple and relies on gut and smell tests, which are usually good indicators.”
BTC price
At the time of writing, Bitcoin is trading around $29,200, down 1% over the past week.
BTC has been moving sideways lately | Source: BTCUSD on TradingView
Featured image of Kanchanara on Unsplash.com, charts from TradingView.com, Glassnode.com
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