Realized Price-to-Liveliness Ratio
Realized Price-to-Liveliness Ratio is a new metric I came up with, using Glassnode’s workbench. As it’s name says, the metric is constructed by two metrics one of each is Liveliness and the other is Realized Price.
The rational behind it is to compare the spending / HODLing behavior of long-term investors (Liveliness) with the ‘fair value’ of bitcoin (Realized Price).
I’ll start off this post by giving a short explanation about each of the constructing metrics, continue with elaborating about the metric itself and conclude with the indications it provides and how it should be used.
Constructing Metrics
Liveliness is a metric which provides insight into the HODLing behavior of long-term HODLers and is helping to identify shifts in macro trends.
Simply put; the metric is a ratio between coins days destroyed and the sum of coins ever created.
Realized Price is the Realized Capitalization divided by current supply, and is calculated by valuing only the active coins at the last time they moved.
Realized Price can be considered as the ‘fair value’ of bitcoin, because it is the average cost basis of all active coins on the network.
Realized Price-to-Liveliness Ratio
Taking the Realized Price and diving it by Liveliness is giving us the Realized Price-to-Liveliness Ratio.
The purpose of this metric is to measure the cost basis of bitcoin (value realized on-chain) by the coin-days destroyed (energy expended to attain that value).
Liveliness (denominator) Increasing
When more coin-days are destroyed that means long-term HODLers are spending coins, which will cause the denominator - Liveliness to increase. Liveliness increasing will cause the ‘fair value’ to be pulled down which will be an indication that long-term HODLers are valuing bitcoin lower than it’s current ‘fair value’.
On the other hand, while less coin-days are destroyed that means long-term HODLers are spending less coins, this will cause the denominator - Liveliness to decrease. Liveliness decreasing will cause the ‘fair value’ to head higher which will be an indication that long-term HODLers are valuing bitcoin higher than it’s current price, therefore they’re willing to HODL coins and not spend them and destroy coin-days.
Realized Price (nominator) Increasing
While Realized Price is increasing it means that more coins are transacted at higher levels, and the cost basis of bitcoin is increasing. Therefore, there is a higher incentive for long-term HODLers to spend coins which will lead to more coin-days destroyed and increase in Liveliness. This will have an upward affect on the Realized Price-to-Liveliness Ratio.
Metric indications
Realized Price-to-Liveliness ratio is a metric which behaves very similar to Realized Price itself.
But the differences between the two is that the Realized Price-to-Liveliness Ratio:
1) Provides indications about the beginning of a bear market earlier than Realized Price.
2) Provides support and resistance areas to macro trends.
3) Provides confirmation to a bull market.
See the images below for visualization of the indictions:
1) Early Bear Market indictions
2) Confirmations of Bull Market beginning
3) Macro trends support and resistance areas.
Conclusions
Like all metrics Realized Price-to-Liveliness Ratio is not perfect but is surely useful, if compared to it’s relative Realized Price it’s lacking the generational buying opportunities and the early indiction of bull market.
Therefore, I think it’s best to use Realized Price-to-Liveliness Ratio along with Realized Price to get all the necessary indictions.
If you reached here thank you for reading, I hope you’ll find use in this metric to navigate better bitcoin’s market.