The final days of 2022 deliver another extremely low reading for on-chain indicators, especially Bitcoin. In today’s analysis, BeInCrypto looks at the on-chain cost base and realized market cap.
Some on-chain metrics are raising hopes that the bottom of the ongoing bear market has already been reached. In contrast, others are suggesting that the final capitulation is yet to come and that the macro bottom will not be reached until 2023.
Today’s on-chain analysis leans more towards the latter narrative, as two key bitcoin market metrics are yet to show any signs of recovery. Although the cost basis and realized market cap are extremely low today, there are no signs of a bullish reversal just yet.
The cost base falls below $20,000
Similar to traditional markets, investors use the cost basis in the Bitcoin market to determine the profitability of their investment. They calculate capital gains or losses by comparing the sale price to the purchase price. Calculating the cost basis in the Bitcoin market requires using on-chain data and weighting the BTC price by the 30-day percentage change in realized price.
A chart of one such indicator, dubbed the on-chain cost basis, was recently posted on Twitter by well-known analyst @DylanLeClair_. He points out that this metric has just dipped below the psychological $20,000 level.
Source: Twitter
Furthermore, we see on the colored chart that the on-chain cost basis has been in a red bearish zone for most of 2022. According to the analyst’s interpretation, the bearish area corresponds to values below 0%. In contrast, the yellow (neutral) area is 0-10% and the bullish (green) area appears when the 30-day percentage change is above 10%.
In the last 5 years, the price of bitcoin has fallen below its on-chain cost basis in only two previous periods. The first time happened at the end of the bear market and during the subsequent accumulation of 2018-19. The second – a much shorter period of extreme lows – was the March-April 2020 COVID-19 crash.
Bitcoin cost basis decline since June 2022
It is worth noting that the Bitcoin cost basis was not that low as early as June 2022. In an analysis at the time, BeInCrypto found that the cost basis for long-term hodlers was still well above their purchase price. Short-term investors were already underwater by then.
However, shortly after this analysis, the price of BTC dropped to a low of $17,622 and the situation definitely worsened. In contrast, in the current market situation, where BTC made a lower low of $15,476 on Nov. 21, the vast majority of cryptocurrency market participants are in the red.
Relative realized market capitalization lowest ever
The reason the on-chain cost base is at extremely low levels today is the decline in realized market cap. This metric evaluates different parts of the supply at different prices (instead of using the current daily close). The cost basis is calculated specifically by valuing each UTXO based on the price it last moved at.
In the chart below we see that since the end of April 2022 there has been a systematic and very steep decline in realized capitalization. In fact, the decline has never been this sharp in Bitcoin’s history. It is currently reaching levels from last August 2021 at $382 billion.
Source: Glassnode
@DylanLeClair_ tweeted another chart based on this extreme drop. From there we can see how deep the relative decline in realized market cap is. On December 27, 2022, it even reached -18.32%. This is the lowest level in history.
In previous bear markets, the relative decline reached around minus 14-16% at its lowest points. If this trend doesn’t reverse soon, we can still expect lower bitcoin prices in 2023.
Source: TwitterFor the latest crypto market analysis from BeInCrypto click here.
Disclaimer
BeInCrypto strives to provide accurate and up-to-date information, but accepts no responsibility for missing facts or inaccurate information. You agree and understand that you should use this information at your own risk. Cryptocurrencies are highly volatile financial assets, so do your research and make your own financial decisions.
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