• Realized price is an on-chain metric used to determine market movements in bear and bull markets.
• Long-term holders (LTHs) and short-term holders (STHs) are the two primary groups driving the market.
• The LTH-STH cost basis ratio can illustrate how the market dynamic is shifting and how STHs or LTHs are buying/selling their BTC.
Realized Price: An On-Chain Metric
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.
Long Term & Short Term Holders
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, this ratio can show how STHs or LTHs are buying/selling their BTC and illustrate how market dynamics might be shifting during different phases of a bear or bull market.
Uptrend in Cost Basis Ratio
An uptrend in this ratio is seen when STHs realize more losses than LTHS, which indicates a bear market accumulation phase led by LTHS. A downtrend in this ratio indicates that LTHS spend coins faster than STHS, which shows a bull market distribution phase where long term holders sell off their coins for profit, which STHS buy up.
Cost Basis Ratio Higher Than 1
A cost basis higher than 1 suggests late stage bear capitulations turning into bull runs – when short term holders accumulate more losses than long term ones, it implies that long term investors have been accumulating Bitcoin throughout a bearish period and now feel confident enough to take profits as prices start rising again during a bullish cycle.