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An analysis of Bitcoin’s market cap reveals that the 2022 bear market produced the fourth worst drawdown from all-time highs. Bitcoin’s drop to $15,500 represents a 76.92% drawdown from ATH.
Market capitalization is one of the most widely used measures in estimating the size and value of assets. Market capitalization, defined as the sum of all units of an asset, is calculated by multiplying the price by the circulating supply.
When it comes to Bitcoin, market capitalization and its volatility are often used to determine network strength and adoption. It is also particularly useful when comparing Bitcoin to other assets and markets.
The biggest price drop from ATH occurred at the end of 2011, when an aggressive bear market wiped out 91.78% of Bitcoin’s market cap. The 2015 and 2018/2019 crypto winters saw drawdowns of 82.75% and 82.63% respectively.
this is of crypto slate In our previous analysis, we found that each market cycle recorded higher lows.
However, the market capitalization does not represent the actual state of the network. Due to the large number of lost and inactive coins, the market capitalization is often higher than the network’s realized value.
This is where realization caps come in as they represent the value of the Bitcoin network based on active coins.
Unlike market cap, which values coins based on their current value, each UTXO represents a realized market cap based on the last price change. This approach is a much better proxy for the value stored in Bitcoin and can be used as a total cost-based estimate for the network.
The realized cap significantly reduces the impact of dormant or lost coins on the network. These coins are considered of low economic value because they were last moved at a much lower price than they actually were, so they have little economic value. However, if these coins are moved after being dormant for years, the impact on the realized price will be correspondingly greater.
The magnitude of change in realized cap indicates the difference between the price at which the coin was last used and the price at which it has previously moved.
Looking at Bitcoin’s price through its realized cap, the 2022 drawdown was the second worst in its history. It has dropped 18.8% from its all-time high.
Chart showing Bitcoin’s realized price drawdown from ATH from 2011 to 2023 (Source: Glassnode)
The ongoing bear market has pushed Bitcoin’s realization cap to $383 billion. This is $56 billion less than Bitcoin’s current market capitalization of $439 billion.
Comparing Bitcoin market cap and realized market cap is considered a good indicator of market phase. In other words, if the market capitalization is higher than the realized cap, the market is making a gross profit.
Simply put, realization cap indicates the value at which the coin was bought and market cap indicates the value at which the coin can be sold.
Conversely, if the realized cap is higher than the market capitalization, the market will be at a gross loss because the value most coins were bought for is higher than the value available for sale.
Data analyzed by CryptoSlate showed that the market is currently making gross profits. And while that profit isn’t as high as the crypto market is accustomed to, it shows a slow and steady recovery from the second-worst price drop in Bitcoin’s history.
