🧐 As we start to enter the world of cryptocurrencies, certain concepts become essential. Without understanding and managing them, it will be difficult to operate successfully in this complex ecosystem. 💡
✅ One of the key concepts from minute one is that of the average price and its calculation.
💰 What is the average price of a token? 🤔
The average purchase price is the mean value at which an asset has been acquired over multiple purchases. S
is calculated by dividing the total stablecoin invested by the total amount of the asset acquired.📢
Average Price = Total stablecoin invested / Total Tokens Received
Why is it important to know your average purchase price?
When we buy an asset periodically, it is key to know our average purchase price 🧮💡. If we do not know it, we will not be able to calculate if we are making profits 📈 or losses 📉 when selling.
🔎 How is it calculated in practical terms? Let's put an example with Bitcoin ⚡:
Let's assume we have made 5 purchases of BTC:
💰 Dollars invested in different purchases over time:
✅ $3,700 + $2,000 + $1,750 + $1,750 + $6,500 = $15,700
₿ BTC received in different purchases over time:
✅ 0.100 + 0.040 + 0.027 + 0.022 + 0.073 = 0.262 BTC
🧮 Average purchase price:
💲 $15,700 / 0.262 BTC = $59,923.66 per BTC
📌 The average price is known in On-Chain Analysis as Realized Price.
If we now want to calculate the market value of our tokens at the current moment (at the On Chain level it is the Market Cap), we will do:
📊 Calculation of Market Cap (Current value of our BTC):
0.262 BTC × $84,167.84 = $22,051.97
🔥 Net profit:
BN= $22,051.97 (selling price) - $15,700 (average purchase price) = $6,351.97 💵✅
In On-Chain Analytics, the net profit obtained is known as "Realized Profit/Loss".
This concept measures the difference between the average purchase price of BTC (Realized Price) and the price at which they were sold or the current market value, thus assessing latent profitability.
If the selling price is greater than the Realized Price (On-Chain Average Purchase Price), a positive Realized Profit is generated.
If the selling price is lower, a negative Realized Loss is incurred.
Another important On Chain concept is the Spent Output Profit Ratio (SOPR), which measures whether the coins spent at a given moment were sold at a profit or loss relative to their purchase price.
SOPR=∑Selling Price of Tokens (Realized Value)/∑Average Purchase Price of Tokens (Spent Value)
Interpretation:
SOPR > 1 → Investors are selling their tokens at a profit.
SOPR < 1 → Investors are selling their tokens at a loss.
SOPR = 1 → Tokens are being sold at the same price they were acquired (no gain or loss).
For our purchase example, the SOPR would be:
SOPR= $22,051.97/$15,700 = 1.404584
This means we have achieved a profitability of 140.45% on the investment made, the $15,700
💡 Conclusion:
Calculating your average purchase price helps you make better decisions in the market and understand your real profitability 📊.
Have you ever calculated the average price of your tokens? Did you know these On Chain terms? 🧮📊💰 Leave it in the comments!
Carmelo Alemán, On Chain Analyst, Price Action Analyst in Trading.
