💡 The Plain-English Definition
Market cap values all bitcoin at today’s price, including coins that have been lost or dormant for years. Realised cap values each bitcoin at the price it last moved on-chain, giving a more accurate picture of the actual capital invested. The ratio between the two is one of the most useful on-chain valuation signals.
🤔 But Why Though?
Market capitalisation — the standard measure for any asset — is the current price times the total circulating supply. For Bitcoin, that’s the total “market value” of all 21 million coins. The problem is it treats a coin that hasn’t moved since 2010 exactly like one bought yesterday at today’s price. It values lost coins, dormant coins, and coins whose owners died without leaving access as if they were liquid and worth today’s price — which overstates the real capital actually put into Bitcoin.
Realised capitalisation (developed by Coin Metrics) fixes this by valuing each UTXO (Unspent Transaction Output — a discrete chunk of bitcoin) at the price it was worth the last time it moved on-chain. A coin that last moved in 2016, when the price was $500, contributes $500 to the realised cap, not $100,000. Adding up all these historical prices gives a figure much closer to the real cost basis — the total price current holders actually paid for their coins.
From this comes the MVRV ratio (Market Value to Realised Value — market cap divided by realised cap). When MVRV is very high (market cap far above realised cap), coins are on average well above what their holders paid — historically a sign of overheating and rising sell pressure. When MVRV approaches 1 or below (market cap near or under realised cap), coins are on average at or below cost — historically a sign of market bottoms and accumulation zones.
🌍 The Real-World Analogy
Imagine trying to value a city’s housing stock. You could multiply every house by today’s market price — but many were bought decades ago, some are derelict, some sit in estates that haven’t been settled. A better approach: value each house at the price it last sold for. The result is closer to the actual capital invested — not perfect, but far more grounded than applying today’s prices to yesterday’s purchases. Realised cap does exactly this for Bitcoin, using each coin’s last on-chain transaction price instead of today’s market price.
⚡ So What?
MVRV is most useful for placing yourself in the cycle: extremely high readings (above 3–4) have historically lined up with market peaks, while readings near or below 1 have lined up with bottoms. It’s not a precise timer — peaks and bottoms can drag on — but it gives meaningful context for whether the current price sits in a market where most holders are well in profit (sell-pressure risk) or near breakeven or a loss (a potential accumulation zone).
