How to identify Bitcoin price lows

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The following is taken from a recent edition of Deep Dive, Bitcoin Magazine’s high-end market newsletter. To be among the first to receive this and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

In today’s Daily Dive, we’ll dig into a new metric for timing bitcoin funds. This metric will use the realized price of two separate cohorts of bitcoin investors; long term holders and short term holders.

First, before we dig into the metric, let’s define some of the terms:

Realized price: The realized price is the average price at which each part (technically: UTXO) was moved on the network. For some, realized market capitalization is an easier measure to understand. The realized market cap, which is a metric almost identical to the realized price, takes the sum of every bitcoin on the network at the last price it moved. The realized price is currently $ 21,100, while the realized capitalization is $ 397.4 billion. The realized price can otherwise be taken as the cost basis for everyone on the average network.

Source: Glassnode

Long-term holder: A long-term holder is defined as a person whose bitcoin has not moved a wallet address for 155 days. While 155 days may seem like an arbitrary threshold, the time was chosen because the statistical probability that a UTXO will be used decreases the longer it is stored. The graph below shows the probability that a UTXO will be spent within the specified time frame in days depending on the age of its coin.

Source: Quantifying the short-term and long-term supply of Bitcoin – Glassnode

With defined long-term holders, anyone whose part has been dormant for less than 155 days is classified as a short-term holder.

Using the Glassnode data suite, we can construct a realized price for long and short term holders. Although Glassnode does not provide the realized price for these two groups of investors, it is easily calculated using the data provided. Using the Market Value / Realized Value (MVRV) ratio for the two separate groups, you simply divide the price by the MVRV ratio of the two groups to backward calculate the realized price.

Below is the history of MVRV for Long Term Holders (LTH) and Short Term Holders (STH):

* Note that LTH MVRV is logarithmic scale, while STH MVRV is linear scale. *

Calculation of the realized price LTH and STH

Source: Glassnode

Source: Glassnode

So how can the rice realized price of LTHs and STHs help us identify bitcoin lows, and * potentially * help identify bitcoin highs? Let’s dive in.

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