Bitcoin MVRV Ratio Approaches 1.5 Level, Will Break Happen?

Keshav Verma

1 year ago

3 mins read

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On-chain data shows the Bitcoin MVRV ratio is approaching a retest of the 1.5 level, breaking above which may be bullish for the asset’s price.

Bitcoin MVRV Ratio Has Been Going Up In Recent Days

As explained by an analyst in a CryptoQuant post, the 1.5 level of the metric has held significant importance in the past. 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 BTC that assumes that each coin in the circulating supply has its real value the same as the price at which it was last moved or transferred on the blockchain.

Since the MVRV ratio compares the market cap (that is, the normal price of BTC) with this fair-value model, the ratio’s value can provide hints about whether BTC is currently aptly valued or not.

When the value of the indicator is higher than one, it means the asset’s market cap is greater than its realized cap right now. Such a trend can imply the cryptocurrency may be overvalued currently.

On the other hand, the metric having values below this threshold suggest the fair value of BTC is above its current price, and hence, the coin may be undervalued at the moment.

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 observed a rapid rise recently | Source: CryptoQuant

As you can see in the above graph, the quant has highlighted the relevant portions of the trend for the Bitcoin MVRV ratio. The region below 1, as mentioned earlier, is the undervalued zone where bottoms have historically formed for the coin. Cyclical tops, however, haven’t generally formed in the zone above 1, but rather at much higher values like 3 or more.

Following the COVID crash back in 2020, the MVRV bounced out of the underpriced region and showed some constant upwards momentum, until it reached higher than 3.75, and the top of the bull run in the first half of 2021 was formed.

After that, in the May-July 2021 mini-bear period, the indicator took a plunge and hit a value of around 1.5. The level, however, provided support to the metric and helped it make a sharp recovery, which ultimately culminated in the November 2021 Bitcoin all-time high price.

When the transition towards the bear market started to take place, the MVRV ratio plummeted to the 1.5 level again, but the line once again helped the indicator hold on.

This time, however, after sideways movement around the level, the indicator eventually plunged below it as the market crash due to the LUNA collapse occurred.

The decline also continued later with the Three Arrows Capital (3AC) collapse, and the metric found itself inside the undervalued region again. The ratio spent a while in this zone until the latest rally came and finally pulled it out of there. This escape above the region may suggest that at least the worst of the bear market may be over for now.

With the sharp rise in BTC recently, the MVRV ratio has also naturally continued to go up and is now approaching the 1.5 level which it had multiple encounters within the last few years.

It’s possible that the coin could find resistance here and be rejected back downwards. The quant believes, however, that if a breach does happen here, then Bitcoin might be able to sustain its bullish momentum.

BTC Price

At the time of writing, Bitcoin is trading around $28,600, up 4% in the last week.

BTC has sharply gone up over the last two days | Source: BTCUSD on TradingView

Featured image from Dmitry Demidko 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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