The final days of 2022 provide another extreme low reading for on-chain indicators, particularly for Bitcoin. In today’s analysis, BeInCrypto looks at the on-chain cost basis and realized market capitalization.
Some on-chain metrics offer hope that the bottom of the ongoing bear market has already been reached. In contrast, others suggest that the final capitulation is still to come, and that the macro bottom will not appear until 2023.
Today’s on-chain analysis leans more toward the latter narrative, as two important metrics of the Bitcoin market have yet to show signs of rebounding. Although the cost basis and realized market capitalization are extremely low today, there are no signs of their bullish reversal yet.
Cost Basis Drops Below $20,000
Investors use the cost basis in the Bitcoin market, similar to traditional markets, to determine the profitability of their investment. They calculate capital gains or losses by comparing the selling price to the purchase price. Calculating the cost basis in the Bitcoin market requires using on-chain data and weighting the BTC price by the 30-day percentage change in the realized price.
A chart of such an indicator, called the on-chain cost basis, was recently posted on Twitter by well-known analyst @DylanLeClair_. He points out that this metric has just fallen below the psychological level of $20,000.
What’s more, on the coloured chart we see that in almost all of 2022 the on-chain cost basis was in a red bearish range. According to the analyst’s interpretation, the bearish range corresponds to values below 0%. In contrast, the yellow (neutral) range is 0-10%, and the bullish (green) range appears when the 30-day percentage change is above 10%.
During the past 5 years, only in two prior periods has the price of Bitcoin dropped below its on-chain cost basis. The first time happened at the end of the bear market and during the subsequent accumulation of 2018-19. The second – a much shorter period of extreme lows – was the COVID-19 crash of March-April 2020.
Decline in Bitcoin Cost Basis Since June 2022
It is worth mentioning that as late as the beginning of June 2022, Bitcoin cost basis was not so low. In an analysis done at the time, BeInCrypto noted that the cost basis for long-term hodlers was still well above their purchase price. Short-term investors were already underwater at the time.
However, soon after that analysis, the price of BTC fell to a low of $17,622 and the situation definitely worsened. In contrast, in the current market situation, with BTC hitting a lower low of $15,476 on November 21, the vast majority of cryptocurrency market participants are in the red.
Relative Realized Market Capitalization Lowest Ever
The reason that the on-chain cost basis is at extremely low levels today is the decline in the realized market capitalization. This metric values different parts of the supply at different prices (instead of using the current daily close). The cost basis is specifically calculated by valuing each UTXO based on the price at which it last moved.
In the chart below, we see that there has been a systematic and very steep decline in realized capitalization since the end of April 2022. In fact, never before in Bitcoin history has the decline been so intense. It currently reaches values last seen in August 2021 at $382 billion.
Based on this extreme decline, @DylanLeClair_ tweeted yet another chart. On it we can see how deep the relative decline in realized market capitalization is. On December 27, 2022, it reached as high as -18.32%. This is the lowest level in history.
In previous bear markets, the relative decline reached the vicinity of minus 14-16% at its lowest points. If this trend is not reversed soon, we can still expect lower Bitcoin prices in 2023.
Source: TwitterFor BeInCrypto’s latest crypto market analysis, click here.
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