• Realized price is a metric to determine market movements in bear and bull markets.
• Bitcoin network is divided into two cohorts: long-term (LTHs) holders and short-term (STHs) holders.
• The LTH-STH cost basis ratio can be used to show the shifting dynamic between these two groups, which can indicate when a bear or bull market may be beginning or ending.
The On-Chain Metric that Could Signal a Bear Market Reversal
Realized price is a metric often used to determine market movements in bear and bull markets. Defined as the value of all Bitcoins at the price they were bought divided by the number of circulating coins, realized price effectively shows the cost-basis of the network.
Dividing the network into cohorts can help us reflect the aggregate cost basis for each major group owning Bitcoin. Long-term holders (LTHs) and short-term holders (STHs) are the two primary cohorts driving the market — LTHs are all addresses that held BTC for longer than 155 days, while STHs are addresses that held onto BTC for less than 155 days.
The LTH-STH Cost Basis Ratio
The LTH-STH cost basis ratio is the ratio between the realized price for long-term and short-term holders. Given the historically different behaviors LTHs and STHs exhibit, the ratio between their realized prices can illustrate how the market dynamic is shifting.
Uptrend vs Downtrend
An uptrend in the LTH-STH cost basis ratio is seen when STHs realize more losses than LTHs – illustrating that short-term holders are selling their BTC to LTHs, indicating a bear market accumulation phase led by LTHs. A downtrend in this ratio shows that LTHs are spending their coins faster than STHs – indicating a bull market distribution phase, where those holding bitcoin sell it off for profit which STH investors buy up with excitement.
Above 1 Indicates Capitulations
Finally, an LTH-STH cost basis ratio higher than 1 indicates that the cost basis for those holding Bitcoin long term is higher than those who bought recently; this has historically correlated with late stage bear markets leading into a bullish run after capitulation from shorter term investors who had been hoping to make quick gains on Bitcoin’s volatility during times like these