Modeling the bitcoin price based on the value of all coins when they last moved on-chain.

October 12th, 2021

Realized Value

On September 23, 2018, at the Baltic Honeybadger conference in Riga, Latvia, Nic Carter presented the concept of realized value (originally “realized cap,” but both terms are since then used interchangeably) that he had developed in collaboration with Antoine Le Calvez. By leveraging the Bitcoin timechain, which holds a public record of all Bitcoin transactions that were ever made, realized value looks to quantify the total United States dollar (USD) value of all bitcoin that existed at the last time those coins were moved on-chain. Figure 1 displays this realized value (blue) alongside the total bitcoin market value (black), which is the total market value of all bitcoin that exist at any point in time.

Figure 1: The bitcoin market value (MV) and realized value (RV).

Under the assumption that most on-chain transactions represent an actual transfer of value (e.g., buying or selling bitcoin against fiat money or using it to consume goods or services), realized value, therefore, represents the aggregated cost base of each bitcoin in existence. As can be seen in figure 1, this aggregated cost base appears to be well suited to estimate bottom prices during bear market conditions, as apparently most bitcoin holders are unlikely to realize losses on an asset that they feel has a lot of long-term upside.

Market-Value-to-Realized-Value (MVRV) Z-Score

This new concept of realized value was a breakthrough in the emerging field of on-chain analysis. On October 2, 2018, David Puell and Murad Mahmudov iterated on Carter and Calvez’s work by introducing the market-value-to-realized-value (MVRV) ratio. The MVRV ratio is calculated by dividing the total bitcoin market value (MV) by its realized value (RV). Therefore, the metric represents the extent in which the current bitcoin market valuation is overextended beyond (values >1) or actually at a discount (values