Good morning from San Francisco!
Part of your editorial team (Ram) is currently at Blockchain Week in SFO, so Rohit will be mostly pinch hitting solo on the newsletter with support from Divyang.
Please hit us up if you want to grab coffee today/tomorrow in SFO or Wed/Thu around #Hoshocon, the Blockchain security conference in Las Vegas. Excited to hear the man Andreas Antonopoulos himself.
Bitcoin’s market cap was >$300B at its peak, and its around $100B now. So, what does market cap signify? It’s simple, ain’t it? It’s a product of the price of Bitcoin and its supply. What is the supply number that you should take into account while calculating market cap? Current or future supply (for example OnchainFX’s Y2050 supply)? Both are widely accepted for calculation of Bitcoin’s market cap, but we feel that market cap which takes into account the future inflation is a better metric.
Now there’s another challenge here. We have heard of multiple instances of people lamenting their bad luck (or rather carelessness) about how they lost the BTC they mined when it was still truly a string of alphanumeric characters and nothing else. Now, those lost BTC aren’t going to come back, are they? And, Satoshi’s not going to dump his 1 million coins on the market, unless he’s a ruthless hedge fund manager right? So, should we not be accounting for the lost BTC, which is actually pretty significant, and the BTC that’s hoarded by true hodlers who will never sell?
Nic Carter and Antoine Le Calvez created a new metric called “realized value” that eliminates the effect of lost BTC and provides valuable insights into serious long-term investors are actually buying BTC. Realized value is the summation of the product of UTXOs
and the prices at which they last moved. For example, if 1 million BTC were lost in 2011, say when the price was $1, it’s contribution to the “realized value” is $1 million as opposed to their $6.7 billion value in BTC’s market cap, at current prices. One obvious advantage of using “realized value” is that it strips out the value associated with lost coins and the noise from short-term emotional buying and selling by FOMO-stricken flaky investors. Murad Mahmudov and David Puell did further research on “realized value” and plotted it against “market value” of BTC. Here’s how it looks -