What is Realized Capitalization?

What is realized cap in crypto on-chain data analysis?

What is Realized Capitalization?
Photo by Thought Catalog 

What is realized capitalization?

Realized capitalization (realized cap) is similar to market capitalization (market cap). The difference is that realized cap values each coin (more accurately, each UTXO) based on its price when it was last moved. Market cap values each coin based on its current price.

Realized Cap = value ⋅ price created​ [USD] (of all UTXOs)
Market cap = circulating supply ⋅ current price

What causes realized cap to change?

An increase in realized cap occurs when coins are transferred or spent at a higher price than they were previously transferred or purchased at.

A decrease in realized cap occurs when coins are transferred or spent at a lower price than they were previously transferred or purchased at.

Why is realized cap useful?

1. Realized cap values lost and dormant coins less than recently spent coins. Compared to market cap, it is a more accurate proxy for the amount of money stored in the asset.

2. Realized cap can be compared with market cap and used as a market bottom indicator.

Research from Glassnode shows that realized cap can be used to identify market phases. This information can be used to determine the best times to buy a cryptoasset.

Figure 1 | Source: glassnode.com

The green boxes in Figure 1 are accumulation phases. Accumulation phases signify the best time to buy an asset. They occur when the market cap is lower than the realized cap of the asset.

3. Realized cap is the basis for other indicators like Maret-Value-to-Realized-Value (MVRV) and Net Unrealized Profit/Loss (NUPL).