Realised capitalisation comes from the market capitalisation metric, which is typically used to assess equities. The market capitalisation of a cryptocurrency is the product of the number of circulating units and the latest market price. However, for cryptocurrencies this does not serve as a good metric since lots of cryptocurrency tends to get lost or unclaimed whereas equities do not.
It is thought that as much of 15% of Bitcoin’s supply is lost and will permanently remain out of circulation. The market capitalisation measure does not account for these lost coins. Realised cap, created by Coin Metrics engineer Antoine Le Calvez, reduces the importance of lost coins and doesn’t deviate from market cap too much.
How to Calculate Realised Cap
Instead of using the daily closing price, realised cap values outputs at the price at the time of their creation. The UTXOs are aggregated and are priced using the value at the point they were last moved. For instance, if we had a UTXO currency of supply 5 and a price of $5, the market cap would be $25.
Consider the case where the UTXO set is split into units of 1, 1, and 3, where the first two units had a price of $0 and the last unit had a price of $5. Since 40% of the supply hadn’t moved at all, the realised cap is $15.
One of the limitations of realised cap is distinguishing between lost coins and coins kept in cold storage. However, cold storage schemes are likely to move UTXOs every once in a while. But if someone had held bitcoin since 2011 and hadn’t spent any yet, realised cap would assume these were lost coins.
How Should Realised Cap Be Used?
Another way of viewing realised cap is to think of it as an indicator of the level that long-term investors entered into their bitcoin positions and abstracts from the short-run, emotion driven stages of bitcoin’s price history.
Realised cap is also useful for comparing different cryptocurrencies, as they may differ in the amount of lost or locked coins.
The chart below shows realised cap versus market cap for bitcoin. If we take realised cap and divide it by the number of circulating coins, we get the value at which most bitcoin investors bought their coins.
Source: Coin Metrics
The price associated with realised cap can also be found on Woobull charts. This price is basically the average price investors paid for their bitcoin as based on the realised cap metric.
The chart below shows the realised price as around $5,700. Historically, the price of bitcoin has bounced off the realised price as support. If the price moved below realised price, it did not stay there long and re-emerged above the realised price. For example, in late 2018, the price of bitcoin fell below the realised price. However, by April 2019 the bitcoin price moved back above the realised price.
Source: Woobull charts
Therefore, traders should keep an eye on realised cap and realised price to look for long-term buying opportunities for bitcoin.
Realised cap is also used to create Delta cap, another metric that can help in identifying market bottoms. The Delta cap is calculated as the realised cap minus the average cap (average cap is the cumulative sum of daily market cap values divided by the number of days a market has been in existence). Over Bitcoin's history, the market cap has touched the Delta cap at bottoms (as illustrated below).
Source: Woobull charts