The final days of 2022 provide yet another extreme low reading for on-chain indicators, especially Bitcoin. BeInCrypto examines the on-chain cost basis and realised market capitalization in today’s analysis.
Some on-chain metrics suggest that the current bear market has already reached its bottom. Others, on the other hand, believe that the final capitulation is yet to come, and that the macrobottom will not appear until 2023.
Today’s on-chain analysis leans more toward the latter narrative, as two important Bitcoin market metrics have yet to show signs of improvement. Despite the fact that the cost basis and realised market capitalization are both extremely low today, there are no signs of a bullish reversal.
Investors in the Bitcoin market, like those in traditional markets, use the cost basis to determine the profitability of their investment. They compute capital gains and losses by comparing the selling and purchasing prices. In the Bitcoin market, calculating the cost basis requires using on-chain data and weighting the BTC price by the 30-day percentage change in the realised price.
The well-known analyst @DylanLeClair_ recently posted a chart of such an indicator, known as the on-chain cost basis, on Twitter. He points out that this metric has recently dropped below the psychological threshold of $20,000.
Furthermore, the coloured chart shows that the on-chain cost basis was in the red bearish range for almost the entire year of 2022. The bearish range, according to the analyst’s interpretation, corresponds to values less than 0%. The yellow (neutral) range is 0-10%, and the green (bullish) range appears when the 30-day percentage change is greater than 10%.
Only twice in the previous five years has the price of Bitcoin fallen below its on-chain cost basis. The first occurrence occurred at the end of the bear market and during the subsequent accumulation of 2018-19. The COVID-19 crash in March-April 2020 was the second – a much shorter period of extreme lows.
It is worth noting that Bitcoin’s cost basis was not so low as late as the beginning of June 2022. BeInCrypto noted at the time that the cost basis for long-term hodlers was still well above their purchase price in an analysis. At the time, short-term investors were already in the red.
However, shortly after that analysis, the price of BTC fell to a low of $17,622, and the situation deteriorated significantly. In contrast, with BTC reaching a lower low of $15,476 on November 21, the vast majority of cryptocurrency market participants are in the red.
The decline in realised market capitalization is the reason for today’s extremely low on-chain cost basis. This metric assigns different prices to different parts of the supply (instead of using the current daily close). The cost basis is calculated specifically by valuing each UTXO based on the last price at which it moved.
The chart below shows that realised capitalization has been declining in a systematic and steep manner since the end of April 2022. In fact, the decline has never been so severe in Bitcoin’s history. It is currently at $382 billion, which was last seen in August 2021.
Based on this precipitous drop, @DylanLeClair_ tweeted yet another chart. It shows the extent of the relative decline in realised market capitalization. It peaked at -18.32% on December 27, 2022. This is the lowest level ever recorded.
At its lowest points in previous bear markets, the relative decline was in the range of minus 14-16%. We can still expect lower Bitcoin prices in 2023 if this trend does not reverse soon.
