Market Cap vs Realized Cap

## Definitions

**Market Cap** = current price × total supply. The standard valuation metric. Calculated at the margin: the last traded price multiplied by all coins ever created.

**Realized Cap** = sum of each UTXO valued at the price when it last moved. A measure of the aggregate cost basis of all bitcoin holders. If bitcoin last moved at $50K and the price is now $70K, the UTXO contributes $50K to realized cap.

## Why Realized Cap Matters

Market cap is a spot measure. It tells you what the market thinks right now. Realized cap tells you what people actually paid — the real money that entered the system.

| Metric | What It Measures | Best Use |
|--------|-----------------|---------|
| Market Cap | Current market sentiment | Short-term price expectations |
| Realized Cap | Aggregate cost basis | Long-term valuation floor |
| MVRV Ratio | Market Cap / Realized Cap | Over/undervaluation signal |

## The MVRV Ratio

The Market Value to Realized Value (MVRV) ratio is the most useful derivative of realized cap:

\`MVRV = Market Cap / Realized Cap\`

- MVRV > 3.7: historically indicates market top (overvalued)
- MVRV < 1.0: historically indicates market bottom (undervalued — coins trading below cost basis)
- MVRV = 1.0-2.0: neutral/acculating zone

## Practical Application

In the June 2026 sell-off: BTC price is ~$67K, realized cap is ~$32K per BTC (weighted average). MVRV ≈ 2.1. This is above the "bottom" zone (MVRV < 1.0) but far below the "top" zone (> 3.7).

Historically, MVRV between 1.5 and 2.5 has been an accumulation zone in bull markets — not the absolute bottom, but close enough for dollar-cost averaging strategies.

## Limitations

Realized cap treats every UTXO equally regardless of its owner. A 10-year-old coin that last moved at $500 contributes $500 to realized cap, even though the owner may be perfectly willing to sell at $67K. Long-dormant coins distort the metric.

Also, realized cap only works for UTXO-based chains (Bitcoin, Litecoin). Ethereum and account-based chains require different approaches (cost basis estimation via exchange inflows).

## Key Takeaways

1. Market cap tells you what people hope. Realized cap tells you what they paid.
2. MVRV > 3.7 historically signaled tops. MVRV < 1.0 historically signaled bottoms.
3. Realized cap is a floor, not a prediction. Coins can and do trade below cost basis.

Market cap vs realized cap

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Market cap vs realized cap

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