Bitcoin MVRV At Critical Level: Will A Break Happen?

Keshav Verma

1 year ago

3 mins read

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On-chain data shows the Bitcoin “Market Value to Realized Value” (MVRV) is at a critical level currently. Will a bullish breakout take place?

Bitcoin MVRV Ratio Is Retesting The 1.5 Level Right Now

As pointed out by an analyst in a CryptoQuant post, the BTC MVRV ratio has been around a critical level recently. The “MVRV ratio” is an indicator that measures the ratio between the market cap of Bitcoin and its realized cap.

The “realized cap” here refers to a capitalization model for the asset that assumes that the true value of each coin in the circulating supply 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 sort of “real value” for the coin, so its comparison with the market cap in the MVRV ratio can tell us how the current spot price (that is, the market cap) weighs up against this fair value.

When the indicator has a value greater than one, it means that the market cap is more than the realized cap right now. In this situation, the investors are holding more value than they put in, so they become more likely to sell and harvest these profits. Thus, this kind of trend can suggest the asset is becoming overpriced and a correction may be on the horizon.

On the other hand, low values imply the market cap of the cryptocurrency may be undervalued at the moment as the average investor is holding their coins at a loss.

Now, here is a chart that shows the trend in the Bitcoin MVRV ratio over the last few years:

Looks like the value of the metric has gone up recently | Source: CryptoQuant

As displayed in the above graph, the Bitcoin MVRV ratio had been below the one mark back during most of the second half of 2022. This isn’t an unusual trend, as bearish periods normally see investors going into deep losses, which naturally results in the indicator’s value plunging.

What’s interesting, though, is the metric’s interaction with the line where its value becomes 1. While bearish trends last, the level usually provides resistance to the asset. Examples of this happening during the past year’s bear market can be seen in the chart.

With the rally this year, however, Bitcoin was able to break past this level, implying that a transition toward a bullish regime had occurred. The indicator briefly dropped to this level in March, but the line provided support to it, confirming that a bullish trend was indeed active.

The MVRV ratio has now recently surged towards the 1.5 level, at which the market cap is 50% more than the realized cap. At these values, the asset naturally starts becoming overpriced and the risk of corrections goes up.

From the graph, it’s visible that the coin found resistance at this 1.5 level when it was retested back in April. Since surging back toward it recently, the cryptocurrency has been moving sideways around this level so far.

It now remains to be seen whether the Bitcoin MVRV ratio can break through this level with the current retest, or if it will end up facing another rejection. Naturally, if it’s the former, the rally might be able to continue.

BTC Price

At the time of writing, Bitcoin is trading around $30,500, down 2% in the last week.

BTC's price action continues to be stale | Source: BTCUSD on TradingView

Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com

Keshav Verma

Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.

Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.

In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.

Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.

Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..

Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.

Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.

As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.

Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.

Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.

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