Bitcoin or Crypto STH-LTH Cost Basis Ratio is a unique metric that helps investors determine the sentiment & potential buy/sell pressure points in the market.
STH-LTH Cost Basis Ratio metric assesses market dynamics by comparing the cost basis of short-term holders (STH) and long-term holders (LTH).
Cost basis
The cost basis is the average price at which a specific big group of Bitcoin holders bought their coins. We can say that it’s the average of the prices paid when these coins were last transferred into their current wallets.
Short-Term Holders (STH)
Short-term holders are those investors who recently bought Bitcoin, usually less than 155 days ago. Their cost basis shows the prices they paid recently in the market.
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Long-Term Holders (LTH)
These are investors who are holding Bitcoin for a longer period, we can say more than 155 days. For long-term investors, the cost basis is generally based on older, possibly lower market trade prices.
STH LTH Cost Basis Ratio
To determine the STH LTH Cost Basis Ratio, we just need to divide the Cost Basis of short-term holders by that of Long-term holders.
For a higher ratio figure, we can say that short-term holders bought their coins at higher prices compared to long-term holders & vice versa.
Example to understand the use of this metric
Let us suppose the average trade price at which short-term investors purchased Bitcoin is $40,000, and the average price for long-term holders is $30,000.
The STH LTH Cost Basis Ratio would be $30,000 / $20,000 = 1.33.
If the ETH LTH Cost Basis Ratio is more than 1.0 then we will say that short-term Bitcoin holders bought at higher prices than long-term holders.
Here in the considered example, we got the ratio value more than 1, so we can say that new investors are more speculative or buying when the market is going up.
On the other hand, if ETH LTH Cost Basis Ratio is less than 1.0 then we will say that long-term holders purchased Bitcoin at higher prices than short-term holders. In this situation, we will say that the market has calmed down since long-term holders bought, and newer buyers are entering at lower prices.
In this way, this metric helps to understand that the market might be in its cycle. High ratios could suggest a possible peak if short-term holders are buying in at much higher prices, perhaps influenced by FOMO (fear of missing out).
On the other hand, a lower ratio figure will be a signal of a possible market bottom, showing that newer investors are getting into the market at lower prices compared to what long-term holders paid.
Reas also: What is Bitcoin Net Unrealized Profit / Loss (NUPL Ratio)?
How does the “Bitcoin STH-LTH Cost Basis Ratio” help in investment decisions?
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