On-Chain data shows that the Market Value to Realized Value (MVRV) of Bitcoin is currently at a critical level. Will there be a bullish breakout?
As highlighted by an analyst in a CryptoQuant post, the BTC MVRV ratio has been sitting at a critical level recently. The MVRV ratio is an indicator that measures the ratio between Bitcoin’s market capitalization and its realized capitalization.
The “realized cap” refers to a capitalization model for the asset, assuming the true value of each coin in circulation is not the current spot price but the price at which the coin was last transferred on the blockchain.
This model aims to find a kind of “fair value” for the coin, so comparing it to the market capitalization in the MVRV ratio can give us insight into how the current spot price (i.e., market capitalization) is performing compared to this fair value.
If the indicator has a value greater than one, it means that the market capitalization is currently higher than the realized capitalization. In this situation, investors hold more value than they invest, making it more likely that they will sell and cash in those profits. Therefore, such a trend may indicate that the asset is overvalued and a correction is imminent.
On the other hand, low values mean that the cryptocurrency’s market capitalization may currently be undervalued, as the average investor is holding their coins at a loss.
Here is a chart showing the trend of the Bitcoin MVRV ratio over the past few years:[Insert chart]
As shown in the chart above, the Bitcoin MVRV ratio remained below the one mark for most of the second half of 2022. This is not an unusual trend, as investors typically experience high losses during downtrends, naturally causing the value of the indicator to decrease.
However, what is interesting is the interaction of the metric with the line where its value becomes one. During downtrends, this level usually provides resistance for the asset. Examples of this happening during last year’s bear market can be seen in the chart.
With the rally seen this year, Bitcoin was able to break through this level, indicating a transition to a bullish regime. The indicator briefly touched this level in March, but the line supported it, confirming that an uptrend was indeed active.
The MVRV ratio has now recently risen towards the level of 1.5, where the market capitalization is 50% above the realized capitalization. At these values, the asset is, of course, overvalued, and the risk of corrections increases.
From the chart, it can be seen that when it was tested again in April, it encountered resistance at this level of 1.5. Since then, the cryptocurrency has been moving sideways around this level.
It remains to be seen whether the Bitcoin MVRV ratio can break through this level with the current retest or whether it will once again face rejection. If the former is the case, the rally could, of course, continue.
At the time of writing this article, Bitcoin is trading at around $30,500, representing a 2% decline in the past week.[Insert price chart]
The price movement of BTC continues to be stagnant.
Overall, the current MVRV ratio level indicates a potentially overvalued asset and the possibility of corrections. However, market trends can always change, so it is important to closely monitor the indicators and price movements to assess the potential for a bullish breakout in the future.