Can Analyzing Miners Revenue Help Assess Market Conditions? CoinMetrics Introduce The RVTC Ratio Data analysis company CoinMetrics introduce the RVTC ratio, a metric which compares realized valuation to the cumulative revenue miners have generated over time. The company details several insights which the new metric generates. Quick take; Data analysis company CoinMetrics introduce a new metric for analysing market conditions which takes into account the cumulative revenue miners have earnedThe ratio can be used to identify periods when an asset’s market is becoming overheatedSuperimposed with MVRV, the ratio can be useful in assessing whether on-chain movements are corresponding with the price increases in the market A new field of cryptocurrency market analysis has been emerging over the past two to three years known as on-chain analysis. On-chain analysis uses a variety of tools to assess the value flowing through blockchains and uses this information to produce insights in relation to price. The leading pioneers in this field are the analysts at both CoinMetrics and Adaptive Capital. In their latest newsletter, CoinMetrics have introduced a new metric which includes the revenue miners have generated as a variable. The metric is the RVTC ratio and compares the realized valuation, a popular on-chain analysis metric, to the cumulative revenue generated by miners, also known as the thermo cap. Realized Valuation & Thermo Cap The realized valuation metric was introduced in December 2018 by cofounder of CoinMetrics Nic Carter (@nic__carter). When market capitalization is calculated, it multiplies the circulating supply of a cryptocurrency by the market price at the time. This makes the valuation highly subject to current market prices. Realized valuation multiplies each transaction by the market price at the time it last moved and aggregates these values together for an alternative valuation to market cap. Realized cap serves to remove the short-term fluctuations in price from the valuation figure. It also accounts for lost or dormant coins. CoinMetrics explains that realized value “prices the supply at the time holders “realized” their gains or losses.” Adaptive Capital describes it as follows: “One way of looking at realized value is that it helps us eliminate some of the lost, unused, unclaimed coins from our total value calculations. Another way is seeing it as an indicator of the sum of levels where groups of long-term, legit, buyer-hodlers entered into their Bitcoin positions, with local and immediate emotions and manias stripped out.” Thermo cap is the cumulative USD-denominated revenue earned by miners over time, inclusive of both fees and block subsidies. It is noted by CoinMetrics to give “an estimate of the net fiat inflow into the asset”. Exchange trading and transfers between users do not represent value inflow as they are internal to the network. The theory behind thermo cap is miners will generally operate slightly above breakeven and the resources they spend will be a good estimate for fiat inflows into the network. Since the resources miners spend is unknown information, the revenue generated is used as a proxy. The thermo cap figure will always rise and will vary based on block subsidy halvings and transaction fee changes. The MVRV Ratio & The RVTC Ratio Adaptive Capital introduced analysing fluctuations in the market capitalization in relation to the realized valuation as a metric to help gauge market conditions. Known as the MVRV ratio, the ratio can assist in assessing whether current market conditions are overvalued or undervalued in relation to the long-term price investors entered at. Historically, values over 3.7 have indicated overvaluation while values under 1 have indicated undervaluation. The MVRV values from the early Bitcoin years can mostly be disregarded due to low levels of on-chain movements observed during this period. CoinMetrics have introduced the ratio of realized valuation to thermo cap as a metric to yield even further insights. Known as the RVTC ratio, the peaks in the metric have coincided with the previous market peaks. CoinMetrics note that the metric is particularly useful at “picking out periods when an asset’s market becomes overheated”. The RVTC ratio can be superimposed with the MVRV ratio to generate further insights. The MVRV ratio increases with increases in market price. But the RVTC ratio will only increase with an increase in on-chain movements occurring at higher prices than previous movements. CoinMetrics note the following in relation to current market conditions: “Looking at the past months, the MVRV went from a bottom of 0.8 to 2.2 (+175%) while the RVTC went from 6.5 to 7 (+8%). This indicates that the recent price movement could continue, despite the realized cap being very close to its ATH.” When increases in the RVTC do not correspond with increases in the MVRV, it is clear that current market movements are not being reflected in on-chain movements of the same magnitude. When greater on-chain movements start to occur at these higher prices, it may be a sign that the market price increases are becoming overheated.