Here’s what the latest trend in Bitcoin’s market cap to realized value (MVRV) ratio suggests about where the market currently stands in terms of tops.
Bitcoin MVRV ratio decreased to 2.34 level
According to data from the market intelligence platform Inside the blockthe BTC MVRV index soared earlier this year as cryptocurrencies surged.
O “MVRV Ratio” is a popular indicator that tracks the relationship between Bitcoin’s market value and realized value. The former is simply the total valuation of the asset’s supply at the current spot price, while the latter is a chain capitalization model.
The realized limit measures the sum total value of the cryptocurrency supply, assuming that each coin in circulation has its true value at the price at which it was last transferred on the blockchain, rather than the current spot value.
One way to interpret the realized limit is that since it takes into account the purchase price of each token in circulation (assuming that the last transaction of each token was in fact the point at which it last changed hands) , it essentially summarizes the total capital investors have invested in the asset.
As such, the MVRV ratio tells us how the total value that Bitcoin investors are carrying right now (i.e., the market value) compares to the value they put in (the realized value).
Now, here is a chart showing the trend of the Bitcoin MVRV index over the past few years:
Looks like the value of the metric has been turning down in recent days | Source: IntoTheBlock on X
As can be seen from the chart, the Bitcoin MVRV index has had a value above 1 for some time. When the indicator has such values, the market value is greater than the realized value and therefore investors make net profits.
As last rally in assets, this indicator rose to relatively high levels, a natural consequence of the increase in holders’ profits with rising prices.
After the recent price drop, however, the MVRV index has also changed, as it is now falling. Currently, the ratio has a value of around 2.34.
“Traditionally, an MVRV index above 3 has been a reliable marker for predicting price spikes,” notes IntoTheBlock. So far in the current rally, the metric has not surpassed this mark. It came close recently, but the most recent decline has meant it has moved a little further away from the level.
Why have tops historically occurred at high values of the Bitcoin MVRV index? The answer is that profit investors are more likely to participate in sales, and this temptation to take profits only increases as their earnings increase.
Because of this, sales are more likely when the market maintains extreme levels of profits, which is exactly what the high values of the MVRV index reflect.
BTC Price
At the time of writing, Bitcoin is trading around $67,200, up 3% in the last 24 hours.
The price of the asset appears to have rebounded over the last few days | Source: BTCUSD on TradingView
Featured image by Yiğit Ali Atasoy on Unsplash.com, IntoTheBlock.com, chart by TradingView.com
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