11 months ago • 1 min
Bitcoin doesn’t generate cash flows in the same way that stocks and bonds do, so for traditional finance types, it can be a tough one to value. But you can use blockchain data to follow the money and figure out when it might be a good time to buy in.
This chart from Glassnode shows two kinds of bitcoin prices: there’s the market price from crypto exchanges (black line), and the realized price (orange line), which is where the blockchain data comes in. Simply put, it’s the average price of all bitcoins based on what they were sold for when they last moved on the blockchain. Think of it like this: say you had a bunch of identical houses and they each sold on different days, for different prices, based on the current market sentiment. The realized price of those houses would be the average price of all those sales. So by comparing bitcoin’s market price with its realized price, you can get a sense of whether it's trading above or below its average value.
Bitcoin’s market price just crossed above its realized price about a week ago, but it was trading at a discount to it since June – apart from a brief stint in August. According to the indicator, that would have made these past six months (blue rectangle) a good time to gather bitcoin. After all, the zone looks a lot like the bear market bottoming areas of 2015 (green rectangle) and 2018-19 (gray rectangle). And in both cases, once the market price made its final cross above the realized price, we saw big rallies for the OG crypto. So if this is indeed the final cross, that could be the buy signal you’re looking for.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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