• This article looks into the realized price metric, which is used to determine market movements in bear and bull markets.
• The article divides the network into two cohorts, long-term holders (LTHs) and short-term holders (STHs), and explains how their cost basis ratio can be used to illustrate market dynamics.
• It also provides examples of how a downtrend or uptrend in this ratio can indicate a bear or bull market respectively.
Realized Price: A Metric for Market Movements
Realized price is a metric often used to determine market movements in bear and bull markets. Defined as the value of all Bitcoins at the price they were bought divided by the number of circulating coins, realized price effectively shows the cost-basis of the network.
Long-Term Holders vs Short-Term Holders
To gain further insight into how markets are shifting, we can divide the network into two major cohorts—long-term holders (LTHs) and short-term holders (STHs). LTHs are all addresses that held BTC for longer than 155 days, while STHs are addresses that held onto BTC for less than 155 days.
Cost Basis Ratio Indicates Market Dynamics
The LTH-STH cost basis ratio is the ratio between the realized prices of long-term and short-term holders. When STHs realize more losses than LTHs, it indicates a bear market accumulation phase led by LTHs. On other hand, if LTHs are spending their coins faster than STHs, it indicates a bull market distribution phase where LTHs sell their BTC for profit which STHs buy up.
Example from 2011 Bear Market
During Bitcoin’s first bear market in 2011, there was an uptrend in the LTH-STH cost basis ratio as STHs realized more losses than LTHs — this showed that short term holders were selling their BTC to LTHS indicating a bear market accumulation phase led by LTHS.. This marked the beginning of a bear market which started on Nov 22nd 2011 and lasted until Jul 17th 2012.
Analysing data related to long term holders vs short term holders through metrics such as cost basis ratios can give us an indication on whether we’re in a bullish or bearish environment. This information can be helpful when deciding when to enter or exit positions during different stages of crypto cycles!