Bitcoin market capitalization analysis shows that the 2022 bear market resulted in the fourth-worst all-time high pullback in its history. Bitcoin’s drop to $15,500 represents a 76.92% decline in its ATH.
Market capitalization is one of the most widely used measures to estimate the size and value of an asset. Defined as the combined value of all units of an asset, market capitalization is calculated by multiplying the price by the circulating supply.
When it comes to Bitcoin, market capitalization and its fluctuation are often used to determine network strength and adoption. It is also particularly useful for comparing Bitcoin to other assets and markets.
ATH’s biggest price drop occurred in late 2011, when an aggressive bear market wiped out 91.78% of Bitcoin’s market capitalization. The crypto winters in 2015 and 2018/2019 saw declines of 82.75% and 82.63%, respectively.
This is in accordance with by CryptoSlate previous analysiswhich found that each market cycle had higher lows.
However, the market capitalization does not represent the true state of the network. Due to a large number of lost and inactive coins, the market capitalization is often higher than the realized value of the network.
This is where the realized cap comes in, as it shows the value of the Bitcoin network based on active coins.
Unlike market capitalization, which values coins based on their current value, realized capitalization values each UTXO based on the price at which it last moved. This approach is a much better approximation of the value stored in Bitcoin and can be used as an estimate of the overall network cost base.
The realized ceiling considerably reduces the impact of dormant and lost parts on the network. These coins are considered to be of low economic value, as they were last moved at such a lower price than its realized price that they have little impact on it. However, if these coins were moved after being idle for years, their impact on the realized price would be that much greater.
The magnitude of the realized cap change shows the difference in price between the price at which a coin was last spent and the price at which it moved previously.
Examining Bitcoin’s price through the realized cap shows that the 2022 drawdown was the second worst in its history. In November 2022, Bitcoin saw its realized cap fall by 18.8% from the all-time high recorded in November 2021.
Graph showing Bitcoin’s price decline against ATH from 2011 to 2023 (Source: Glassnode)
The ongoing bear market has set Bitcoin’s realized cap at $383 billion. This is $56 billion less than Bitcoin’s current market capitalization of $439 billion.
Comparing Bitcoin’s market capitalization to its realized capitalization is considered a good indicator of market phases. Namely, when the market capitalization is greater than the realized capitalization, the market is in overall profit.
In simple terms, the realized cap indicates the value at which the coins were bought, while the market cap indicates the value at which they can be sold.
Conversely, when the realized capitalization is higher than the market capitalization, the market is in overall loss, because the value at which most coins were bought is higher than the value at which they can be sold.
Data analyzed by CryptoSlate showed that the market is currently in overall profit. And while this profit is not as high as what the crypto market is used to, it does indicate a slow and steady recovery from the second-worst price drop in Bitcoin history.