



Valuation methods are among the most misunderstood aspects of the cryptocurrency world. Cryptocurrency is a new, unproven asset class traded on the backs of new, unregulated exchanges in volumes that range from thousands to billions of dollars each day, so the metrics used to measure value for other asset classes don’t apply perfectly.







The most obvious example is the traditional definition of market capitalization. For equities, market cap is defined as the number of shares outstanding * the value of each share on the exchange it trades on. And since almost all equities trade on a single regulated exchange with high volumes, the market price is often taken as the true price of an equity.





But cryptocurrencies operate differently. First, there are hundreds, if not thousands, of exchanges offering various subsets of cryptoassets. Some offer just Bitcoin, some offer a handful, and some offer hundreds of trading pairs for investors all over the world. This makes it difficult to determine a coin’s market cap given the splintered markets where a coin might be available to trade. Bitcoin is available to trade everywhere, but the 100th coin on CoinMarketCap isn’t. Why should those two coins use the same metric for assessing market cap?





In addition, every coin has a different release schedule. Some coins have a majority of the available supply still locked up. Others, like Bitcoin, have less than 20% of all available supply still locked up. What happens when the coin with all its supply locked up releases that supply? The price drops drastically. Therefore, using market cap as equities do is once again an awful metric for measuring cryptocurrencies.





Realized capitalization (or realized cap) instead takes the prices at which every coin last switched hands, and multiplies that by the number of tokens involved in each trade, to arrive at a more fair metric that all cryptocurrencies can be judged by.









Upon examining this metric further, we can see one interesting result. Bitcoin is at an all-time high in realized cap. All through the 2017 bubble, Bitcoin’s realized cap hovered around $90 billion dollars, but it has rapidly broken through that level in the last few days. Bitcoin’s realized cap has now reached over $93 billion and climbing.





What does this mean for Bitcoin? It means that the cost basis for Bitcoin investors is higher than it’s ever been, and that the average purchase price paid by a Bitcoin holder is somewhere in the range of $5,000-$6,000 per coin. It also helps put 2017 into context. Despite prices rising as high as $19,000, the reality is that almost no trading occurred at those levels. Most investors either held on for the whole bubble, or traded at far lower prices on either side of the peak.







