On-chain data shows the Bitcoin price is now making a retest of its realized price, can this help push the asset’s value back up and restart the rally?
Bitcoin Is Now Retesting Its Realized Price Of About $19,700
As an analyst in a CryptoQuant post pointed out, BTC has to maintain this level if the bullish outlook continues. The “realized price” here refers to a price derived from a Bitcoin capitalization model called the “realized cap.”
Unlike the normal market cap, which puts the value of all the coins in the circulating supply as the same latest BTC price, the realized cap says each coin’s “true” value is the price at which it was last moved.
The main advantage of this cap model is that it puts less weight on coins that have been dormant for a long time (as the price would have been much lower back then).
Many such coins have become permanently inaccessible due to lost wallet seed phrases. However, the market cap still puts the same value on them as any other coin, despite the fact that they can no longer influence the price in any meaningful way. The realized cap helps mitigate this problem.
If the realized cap is divided by the total number of coins in circulation, the “realized price” is obtained. Unlike the normal price (that can be similarly obtained from the market cap), this realized price isn’t a value that applies to each coin.
What the realized price rather signifies is the cost basis of the average holder in the Bitcoin market. That is the price at which the average investor acquired/bought their coins.
Here is a chart that shows the trend in the Bitcoin realized price over the last few months:
Looks like the price has been approaching the metric in recent days | Source: CryptoQuant
As displayed in the above graph, the Bitcoin price had been under the realized price during the bear market lows, but with the start of the latest rally in January, the asset had managed to break through the level.
Whenever the price is below the realized price, the average investor is currently in a state of loss. Such holder conditions have historically been seen during bear markets, and the level has acted as resistance. In contrast, such periods have lasted, implying that the price has remained trapped under it.
Bullish winds have usually taken over with the price breaking above this level, and whenever a successful break has happened, this line has turned into support instead.
With the latest decline in Bitcoin, the price is now again retesting the realized price, currently valued at about $19,700. This could be a true test for the rally as if a real transition towards a bullish period has taken place, this level should act as support and help the price rebound.
A failure here, however, could be bad news for the cryptocurrency, as it may be a sign that the bear market isn’t over yet after all.
At the time of writing, Bitcoin is trading around $19,900, down 11% in the last week.
BTC has plunged in the past day | Source: BTCUSD on TradingView
Featured image from André François McKenzie on Unsplash.com, charts from TradingView.com, CryptoQuant.com