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One of the questions I am asked the most about #Bitcoin is how much capital needs to flow in/out in order to create a $1 change in Market Cap?
There is no perfect answer, but I think I now have a pretty decent answer. Let's dive into the data 🧵
The Realized Cap
This metric is the on-chain equivalent to the market capo, valuing each coin at the price when it last transacted.
This model really represents the value SAVED in #Bitcoin, since it is keeping track of the price it was acquired at. Sure there are nuances, but it is a pretty damn close estimation in my experience.
If the Realized Cap is a model capturing capital inflows and outflows, then we can compare how big of a takes place in the Realized Cap to affect the Market Cap.
The Capital-to-Valuation Change Ratio
Here I compare 90-day percent change of of both valuation models, and then take a ratio of them (absolute value).
After applying a 90-day median, we get the grey area trace which I call the Capital-to-Valuation Change Ratio. This shows how many $ needed to enter or exit the Realized Cap to create a $1 change in the Market cap. I also have a 4yr Median through the guts of it for the long term view.
Key Insights
What emerges are some pretty valuable insights to my eye which help contextualise things:
- Bull markets end when you need more than $0.80 to $1.00 injected to keep the Market Cap going --> unsustainable levels.
- In the early years up to 2016, we needed around $0.45 per $1 change. This reflects market immaturity, but also the insane returns which investors were able to lock in off just a few hundred $ invested. Early investors actively sold their $BTC, and mining sell-side on a per coin basis was still significant. Very few actually HODLed the whole way from 2013 to 2017.
- In modern times, we seem to need just $0.25 in capital flows to spark an equivalent move in the valuation. HODLers are more in tune with #Bitcoin than ever before due to education, and the liquid circulating supply continues to decline. This is despite there being an ATH in circulating supply.
So to summarise, there is no perfect model for capital in vs valuation out, but my instinct is that this isn't the worst estimation approach. It keeps it simple, and aligns with gut feel and smell tests, which I find are usually good indicators.
Any thoughts of feedback welcomed!
Chart link below, and report coming soon.
https://t.co/qh47RiFb19
there’s a whole movie made on a handful of folks who managed to catch the ‘08 recession before others could - ‘The Big Short’
in 2023 you have the average twitter homie sidelined and anticipating a recession and death to the stock markets
doubt it’s that easy
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Precies een jaar geleden schreef ik dit verhaal over https://t.co/XLUZC8ZdOk voor @Quotenet:
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Nu vraagt Booking om staatssteun.
https://t.co/98DzxxBGm9