Why did Bitcoin’s market cap surge by over $102 billion while realized cap only grew by $4 billion?

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Bitcoin’s price saw a sig­nif­i­cant increase in Feb­ru­ary, jump­ing from $43,049 at the begin­ning of the month to $49,900 on Feb. 12, as of press time. Cross­ing $49,000 marks a sig­nif­i­cant mile­stone for BTC, as it indi­cates the poten­tial to breach the $50,000 resis­tance and move clos­er to its all-time high. Along­side its price surge, Bitcoin’s mar­ket cap­i­tal­iza­tion increased dra­mat­i­cal­ly by over $102.5 bil­lion in Feb­ru­ary. Dur­ing the same time­frame, Bitcoin’s real­ized cap saw a more mod­est increase, ris­ing just over $4 bil­lion, from $447.48 bil­lion to $451.66 billion.

Under­stand­ing the dif­fer­ences and increas­es in these two met­rics is cru­cial for mar­ket analy­sis. While both might seem too broad to offer insight into sub­tle mar­ket move­ments, their dif­fer­ence, and long-term trends are often among the best mar­ket health indi­ca­tors. This is espe­cial­ly true for real­ized cap, an often over­looked met­ric that pro­vides valu­able infor­ma­tion about the aggre­gate cost basis for the entire market.

Mar­ket cap­i­tal­iza­tion is cal­cu­lat­ed by mul­ti­ply­ing Bitcoin’s cur­rent mar­ket price by the total num­ber of coins in cir­cu­la­tion. It’s a very crude met­ric but a wide­ly used one, as it’s the best way to present the size of a par­tic­u­lar asset or mar­ket. Mar­ket cap is high­ly respon­sive to price fluc­tu­a­tions and often expe­ri­ences sig­nif­i­cant shifts with­in short peri­ods, mir­ror­ing the imme­di­ate mar­ket sen­ti­ment and spec­u­la­tive activ­i­ties. An uptick in Bitcoin’s mar­ket price can quick­ly and aggres­sive­ly expand the mar­ket cap, show­ing the cur­rent val­u­a­tion of all Bit­coins at BTC’s lat­est mar­ket price.

bitcoin market cap 2y
Graph show­ing Bitcoin’s mar­ket cap­i­tal­iza­tion from Feb­ru­ary 2022 to Feb­ru­ary 2024 (Source: Glassnode)

Real­ized cap, on the oth­er hand, pro­vides a more nuanced per­spec­tive of Bitcoin’s val­ue. Unlike mar­ket cap, which only con­sid­ers Bitcoin’s lat­est mar­ket price, real­ized cap con­sid­ers the his­to­ry of each coin to under­stand its con­tri­bu­tion to the total val­ue of the Bit­coin net­work. This method looks at the price at which each Bit­coin was actu­al­ly moved. By focus­ing on these trans­ac­tion prices, real­ized cap offers a snap­shot of the mar­ket that con­sid­ers the actu­al prices peo­ple paid for their BTC rather than the cur­rent mar­ket price, which can be influ­enced by short-term trading.

When Bit­coins are trad­ed at prices high­er than the price at which they were last moved, the real­ized cap increas­es. This is because the new­er, high­er trans­ac­tion prices are now con­sid­ered, rais­ing the over­all “cost basis” or the aggre­gate amount spent on acquir­ing Bit­coins. If, on the oth­er hand, Bit­coin is only being moved at prices low­er than their last trans­ac­tion price, the real­ized cap decreases.

This “aggre­gate cost basis” is a cru­cial con­cept as it pro­vides insight into the actu­al invest­ment poured into Bit­coin. It offers a more sta­ble and less volatile met­ric than the mar­ket cap, which can swing wild­ly with price changes. The real­ized cap, there­fore, can be seen as a more ground­ed mea­sure of Bitcoin’s eco­nom­ic foot­print, reflect­ing the stead­fast com­mit­ment of investors to the net­work over time.

bitcoin realized cap 2y
Graph show­ing Bitcoin’s real­ized cap from Feb­ru­ary 2022 to Feb­ru­ary 2024 (Source: Glassnode)

The con­trast seen in Feb­ru­ary — where the mar­ket cap saw a sub­stan­tial rise while the real­ized cap saw a more mod­est increase — shows a peri­od of sig­nif­i­cant price appre­ci­a­tion. This diver­gence is attrib­ut­able to the mar­ket cap’s direct reflec­tion of cur­rent price move­ments, as opposed to the real­ized cap.

The surge in mar­ket cap indi­cates the over­ar­ch­ing mar­ket sen­ti­ment and liq­uid­i­ty. A bull­ish sen­ti­ment can cat­alyze more buy­ing, pro­pelling both the price and mar­ket cap upwards. How­ev­er, the real­ized cap will not prompt­ly mir­ror this enthu­si­asm if this buy­ing activ­i­ty is con­cen­trat­ed with­in the young sup­ply rather than involv­ing long-held coins.

bitcoin realized cap market cap ytd
Graph com­par­ing Bitcoin’s mar­ket cap and real­ized cap from Jan. 1, 2024, to Feb. 11, 2024 (Source: Glassnode)

The increase in real­ized cap sug­gests that a sig­nif­i­cant vol­ume of Bit­coin has changed hands at prices high­er than the his­tor­i­cal aver­age at which they were pre­vi­ous­ly acquired. The con­tin­u­ous increase in real­ized cap since Sep­tem­ber 2023 shows that the mar­ket is steadi­ly absorb­ing sell­ing pres­sure, with both new and exist­ing investors show­ing readi­ness to buy at or above cur­rent prices.

This foun­da­tion can serve as a launch­pad for future price increas­es, as it reflects a sol­id under­ly­ing investor con­fi­dence and a val­u­a­tion basis that is less like­ly to be erod­ed by short-term mar­ket volatility.

The post Why did Bitcoin’s mar­ket cap surge by over $102 bil­lion while real­ized cap only grew by $4 bil­lion? appeared first on Cryp­toSlate.

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