Data from Santiment shows that crypto market assets have now started to enter into the “overbought” territory, but they aren’t yet in the danger zone.
Crypto Assets Are Slightly Overbought Right Now, According To MVRV
As per data from the on-chain analytics firm Santiment, traders are currently slightly in the green. The relevant indicator here is the “Market Value to Realized Value” (MVRV) ratio, which measures the ratio between the market cap of an asset and its realized cap.
The “realized cap” here is a sort of fair value model that can be applied to any crypto. Since the MVRV ratio compares the value of the asset (the market cap) with this “true value,” the indicator’s value can provide hints about whether the given asset is overpriced or underpriced right now.
When the value of this metric is greater than 1, it means the market cap is higher than the realized cap right now, meaning that traders are on average in some profit. High values above this mark generally suggest that the asset is currently overbought.
On the other hand, values below this mark imply the average holder is underwater at the moment, and hence the crypto may be underpriced currently.
Now, Santiment has defined an “opportunity zone” and a “danger zone” for the MVRV, which, as their names already imply, are zones inside which the indicator gives buy or sell signals.
Here is a graph that shows how far the MVRV is from these zones (on different timeframes, like 1-day, 7-day, etc.) for various assets in the crypto market:
Looks like most of the values are in the negative right now | Source: Santiment on Twitter
As you can see in the above graph, assets become overbought when the MVRV divergence from the danger zone hits -1. Similarly, the underbought condition takes place at +1.
Note that this is reversed from how the MVRV ratio works (where values above 1 indicate the overpriced zone). Santiment says that the flipped polarity is intentional, as it makes things more intuitive.
From the chart, it’s apparent that all the cryptos in the market are inside the negative zone on at least some of the timeframes, suggesting that their prices are slightly overpriced right now.
However, most of the assets haven’t yet hit the danger zone, as the likes of Bitcoin, Ethereum, and XRP have current MVRV divergence values standing at -0.27 or lower. This could mean that their prices may not be at too much risk of a correction currently.
Nonetheless, it still implies that the market as a whole is still carrying some profits at the moment. “Markets move up with the highest probability when traders’ assets are underwater. Currently, they’re mildly over,” explains the analytics firm.
At the time of writing, Bitcoin is trading around $24,300, down 1% in the last week.
The value of the asset seems to have been consolidating in the last few days | Source: BTCUSD on TradingView